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Binance has succumbed to pressure from customers to keep their assets in independent custodians, raising traders' concerns about the safety of the world's largest cryptocurrency exchange after it was fined by US authorities last year. This became clear.
The exchange has begun allowing some large traders to store their assets in independent banks such as Switzerland's Sygnum Bank and Flow Bank, according to three people familiar with the deal. Previously, Binance customers could only hold assets through the exchange or custodian Ceffu, which states on its website that it is the “sole institutional custodial partner of the Binance exchange.” U.S. regulators last year described Ceffu as a “mysterious Binance-related entity.”
“I would rather keep my money in a Swiss bank than in Binance,” said the head of a cryptocurrency trading company, adding that it is “in theory safer” to keep money in a custodian that is supervised by regulators.
“We began considering and developing a tri-party solution for banks nearly two years ago, long before counterparty risk became salient,” Binance said, citing agreements between Binance, its customers, and bank custodians. Stated. He declined to comment on the bank's name, adding: “Counterparty risk is an industry concern and is not unique to Binance.”
Traders said the risk of leaving their money on the exchange increased after Binance rival FTX collapsed in 2022, leaving thousands of investors' funds locked up in the company's bankruptcy proceedings.
The recent crackdown on Binance by US authorities is also a cause for concern. Last year, the U.S. Treasury and Department of Justice jointly imposed a record $4.3 billion fine against Binance after the company pleaded guilty to criminal charges related to money laundering and violations of international financial sanctions. did.
The Securities and Exchange Commission charged Binance with 13 violations of securities laws and accused it of engaging in an “extensive web of deception and conflicts of interest.” Binance is contesting the charges.
Top cryptocurrency exchanges such as Binance and Coinbase have built their market share by simultaneously serving as a trading venue, custodian, and lender. This has regulators concerned. In the mainstream financial industry, each of these services is typically provided by different independent companies to reduce risk. Custody banks work by keeping their customers' assets safe.
“These trading platforms, called exchanges, mix a lot of functionality,” SEC Chairman Gary Gensler said last year.
The head of a major cryptocurrency hedge fund said, “My capital should never touch exchanges.'' They added that using Ceffu so far has been “an unavoidable evil, since the alternative is to move away from Binance entirely.”
“It works [and] Although the teams are different, there is a sense that decisions are still being made on Binance,” they added. “The risk that remains is that the same location is still there.”
The fund is currently testing the use of one of the banks before transferring its assets there completely.
The system allows customers to park their funds with a custodian of U.S. Treasuries, allowing traders to earn about 4% interest due to the high interest rate environment, two people familiar with the matter said.
“This deal directly addresses the issue of counterparty risk, which is a top concern for institutional investors today,” Binance said in a statement. We have launched and successfully implemented a management solution to better manage our risks and further expand our activities.”
The exchange added that it is “actively engaging with a number of banking partners and institutional investors who have expressed interest.”
Signum said it was “approached by some of our existing and prospective customers and asked if we could design a solution that would prevent them from facing significant counterparty risk when choosing to trade on crypto exchanges.” Stated.
The digital asset bank added that it is helping its “largest institutional customers separate their custodial and trading counterparties” “based on the wishes of a large number of these customers.” The company added that the product is being tested before being fully launched. Flowbank did not respond to requests for comment.
Ceffu said its corporate structure is independent from Binance. It added that the company's custody business is built with “a segregated account and wallet system that is separate from partner exchanges, including Binance.”
Despite the U.S. crackdown, traders say they are reluctant to stop trading on Binance completely because it remains the world's most liquid cryptocurrency exchange. “Liquidity exists,” the crypto hedge fund said.
Still, the company's market share has fallen to 30% of exchange trading volume compared to 55% a year ago, according to CCData.
