Binance opens door for external custody of crypto assets

abdelaziz Fathi

Binance has started allowing some of its larger traders to use independent banks for holding their assets. The move comes as traders are unease over the security of assets on the world’s largest cryptocurrency exchange, especially following its recent fine by US authorities.

Binance is now enabling these traders to store their assets with independent financial institutions like Switzerland’s Sygnum Bank and Flow Bank. Before this change, Binance clients could only keep their assets on the exchange or through custodian Ceffu, which the US regulators last year labeled as a “mysterious Binance-related entity”.

A crypto trading firm executive told the Financial Times that they prefer a Swiss bank over Binance for asset custody, citing the perceived safety and regulatory oversight of such institutions.

Binance stated that it developed a banking triparty solution almost two years ago, citing the counterparty risk as a concern across the industry, not just for Binance. The arrangement involves Binance, its customers, and a bank custodian.

The move to independent custodianship comes in the wake of the collapse of FTX in 2022, which heightened concerns about leaving money on exchanges. Binance’s own legal troubles have added to these worries. Last year, the US Treasury and Department of Justice imposed a record $4.3 billion fine on Binance for criminal charges related to money laundering and breaching financial sanctions. The SEC has also charged Binance with multiple securities law violations, which the exchange is currently contesting.

The practice of exchanges like Binance and Coinbase operating simultaneously as trading venues, custodians, and lenders has been a regulatory concern. In traditional finance, these roles are usually performed by separate, independent firms to mitigate risks. SEC chair Gary Gensler highlighted last year the risks associated with exchanges combining multiple functions.

Some large crypto hedge funds were also reluctant to use Binance’s custody partner due to perceived overlaps in decision-making. These funds are now exploring using independent banks for asset custody.

Binance asserts that the new arrangement addresses the primary concern of counterparty risk for institutional investors, allowing for better risk management and scaling of activities. The exchange is engaging with various banking partners and institutional investors interested in this solution.

Sygnum Bank confirmed being approached by clients to develop a solution that minimizes counterparty risk when trading on crypto exchanges. It is currently testing a product to help institutional customers segregate their custody and trading counterparties.

Despite these changes, traders remain hesitant to leave Binance entirely due to its liquidity, although its market share has dropped from 55% to 30% over the past year.

  • Read this next

    Retail FX

    Afterprime enhances trade reporting with PrimeXM and TRAction

    “This collaboration has made setting up EMIR and MIFIR reporting for our CySEC entity a breeze, allowing us to maintain our focus on providing best-in-class pricing and top-notch customer service.”

    Market News

    US Market Stocks See a Dip Ahead of FOMC Minutes Announcement

    As the financial world eagerly awaits the release of the Federal Open Market Committee (FOMC) meeting minutes scheduled for today, the S&P 500 index begins trading slightly lower, marking a subtle shift in market sentiment following a prolonged rally.

    Fintech

    Adaptive proves that “the future of finance is in the cloud”

    “While workloads have migrated to the cloud over the past decade, some have doubted whether its latency and fault tolerance can match that of on-premises solutions – our joint testing on Google Cloud, proves that this is the case.”

    Retail FX

    Axi Select offers live trading amid “end of demo account prop firm model”

    “We genuinely empathize with the thousands of talented traders who will now be denied access to their allocated funds, and we encourage anyone using the demo trading registration model to question whether their prop firm partner will be able to continue as an ongoing concern given recent events. Unfortunately, this could be the beginning of the end for the demo account prop firm model.”

    Digital Assets

    Celsius founder Mashinsky agrees to shared lawyers with Sam Bankman-Fried

    Former Celsius CEO Alex Mashinsky has addressed potential conflicts of interest in his legal representation during a brief hearing in a New York courtroom.

    Digital Assets

    Sam Bankman-Fried captured in first jail photo

    Sam Bankman-Fried, the once-billionaire founder of FTX, has been spotted looking quite different with a new beard and a slimmer figure in a photo that’s been making rounds, reportedly taken inside New York’s Metropolitan Detention Centre.

    Market News

    Bitcoin stalls at $53,000 level, Ethereum reaches $3,000

    Bitcoin (BTC) faced renewed resistance at the crucial $53,000 level on Tuesday, indicating that the primary cryptocurrency is likely to continue consolidating before making its next decisive move.

    Digital Assets

    UK targets new laws for stablecoins and crypto staking within six months

    The United Kingdom is gearing up to enact fresh legislation regulating stablecoins and crypto staking within the next six months.

    Web3

    Masa’s Milestones Before Mainnet Launch

    Since its launch in August 2022, Masa, the premier decentralized network for personal data, has experienced rapid growth, securing over 1.2 million unique wallets and accumulating more than 23 million data points. Despite a bear market, the network has attracted over 40,000 node operators to its testnet within just 18 months.

    <