Binance Rolls Out Third-Party Banking Agreement to Reduce Counterparty Risk

Binance has announced the world’s first cryptocurrency triparty arrangement with a third-party banking partner, according to a press release put out by the crypto exchange Wednesday.

Off-exchange collateral

The agreement gives customers the option of keeping their collateral off-exchange with a third-party banking partner.

“Counterparty risk has long been a concern of institutional investors across the industry,” said Catherine Chen, head of VIP and institutional banking at Binance. “Our team of crypto natives and traditional finance professionals has been exploring a banking triparty agreement for more than a year to address their concern.” 

According to the press release, collateral held by the banking partner will take the form of a fiat equivalent, like Treasury Bills, which the company notes “has the added benefit of being a yielding asset.”

“We’ve developed a solution that ensures our institutional clients can optimize their collateral and cryptocurrency investments, modeled after the traditional markets’ trading conduct,” Chen continued. “We are in close discussions with an array of banking partners and institutional investors who have also expressed strong interest in participating.”

Calling counterparty risk “the primary concern for institutional investors today,” the new agreement allows investors to “proportion their crypto-asset allocation based on their risk tolerance.” The release claims the triparty arrangement frameworks often found in “traditional financial markets.”

Discussions of an emerging regulatory framework

News of Binance’s landmark agreement comes amidst broader discussions in the crypto industry about implementing a more robust regulatory framework.

In early November, FTX founder, Sam Bankman-Fried, was found guilty on seven fraud-related charges for stealing and commingling customer funds, leaving an $8 billion hole in its wake.

John Jay Ray III, an attorney specializing in recovering funds from troubled companies, is responsible for overseeing the FTX bankruptcy estate.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” wrote Ray in a 2022 court filing.

Binance’s transition

The new Binance agreement follows the resignation of former CEO and founder, Changpeng “CZ” Zhao, after he pleaded guilty to violating numerous federal statutes. 

“I made mistakes, and I must take responsibility,” Zhao wrote in an announcement posted on X as he announced his resignation. “This is best for our community, for Binance, and for myself.”

Richard Teng, former Head of Regional Markets for Binance, has taken over Zhao’s role as CEO.

“​​He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth,” wrote Zhao.