Binance has just struck a major blow by teaming up with a banking partner to offer institutional investors a revolutionary risk management solution. Explanations.
An innovation inspired by traditional finance
Binance proudly announces the establishment of the very first tripartite system in the crypto universe. Certain financial institutions may post collateral when transacting on the CZ platform. This is done by contacting a specific banking third party.
This major advance replicates the model of traditional financial markets. Investors have the possibility to allocate their cryptocurrencies according to their risk aversion. This distribution is accompanied by the blocking of equivalent assets with the banking partner.
For Chen Liangdirector of private and institutional clients at Binance, this long-awaited solution will allay the fears of the sector: “Counterparty risk has long worried traditional players wishing to venture into cryptocurrencies. By transposing a proven mechanism from contemporary finance, we hope to convince them to take the plunge.”
A risky bet for Binance?
Certainly, this partnership with a conventional banking player may seem iconoclastic for a platform supposed to manage decentralized assets since its beginnings. Isn’t it denying the very fundamentals of cryptocurrencies to use a centralized intermediary to manage security deposits?
On the other hand, Binance had little choice if it wanted to attract more cautious investors. By enlisting the services of a trusted third party with proven methods, the exchange is betting on massive adoption by institutions. Even if it means offending some blockchain purists…
Although risky for its brand image, this strategy of rapprochement with the traditional banking world is fully justified from a business point of view. And the figures speak for themselves: in 2022, institutional investors have invested more than 15 billion dollars in cryptos, with an average annual growth of 110%!
As we can see, behind the speeches of distrust, banks and cryptos ultimately seem destined for a marriage of convenience. Certainly, mentalities have difficulty changing in the upper financial spheres. But by replicating mechanisms known to reassure, Binance could unlock colossal amounts from investment funds, insurers and other institutions.
To be continued in the coming months to find out if this daring bet will pay off! But one certainty: when it comes to crypto, you shouldn’t swear by anything… Meanwhile, central banks find themselves helpless.
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