In the face of increasingly stringent regulatory requirements in the cryptocurrency industry, Binance is taking measures to reduce counterparty risks. According to the Financial Times, Binance has allowed some large traders to store their assets in independent banks such as Sygnum Bank in Switzerland and Flow Bank.
The operational model of cryptocurrency exchanges, which serve multiple roles such as trading venues, custodians, and lenders, has always been a concern for regulatory authorities. This concern has been amplified, especially after the FTX incident exposed the unauthorized use of customer assets.
According to sources cited by the Financial Times, Binance has started taking measures by allowing some large traders to store their assets in independent banks such as Sygnum Bank and Flow Bank in Switzerland. Previously, Binance customers could only hold their assets on the exchange or through custodian company Ceffu.
Sygnum Bank, which recently raised $40 million in funding, stated that it is providing services to its institutional clients to separate custody and counterparty risks. The product is currently in the testing phase and is preparing for a full launch. Flow Bank has not commented on this matter.
Ceffu is a related entity to Binance? Last year, US regulatory authorities had a reserved attitude towards the custodian company Ceffu, describing it as a “mysterious entity associated with Binance.” The person in charge of a major cryptocurrency hedge fund that has been using Ceffu for fund custody responded to this, stating that Ceffu is independent of Binance. Ceffu explained that its company structure is unrelated to Binance.
Binance: Developing a third-party solution two years ago. According to reports, Binance stated that they had started exploring and developing a third-party banking solution that covers Binance, its customers, and custodian banks even before counterparty risk became a widely discussed issue in the industry. Although Binance did not disclose the specific names of the cooperating banks at that time, they emphasized that counterparty risk is a common concern in the entire cryptocurrency industry, not just limited to Binance itself.
Counterparty risk refers to the risk that exists in the trading process, where the counterparty may fail to fulfill contractual obligations. In the traditional financial sector, different independent entities usually provide services such as trading venues, custody, and lending to reduce such risks. The role of custodian banks is to securely store customer assets and ensure their safety.
If the report by the Financial Times is true, this move reflects Binance’s efforts as an industry leader to enhance the security measures of customer assets. This not only increases trust but also helps improve the overall regulatory compliance of the industry.