Binance Responds To Traders Demands For Independent Custody

Binance allows larger traders to use independent custodians like Sygnum Bank, amid safety and regulatory concerns.

What is Binance doing to ensure greater safety?

Binance, the world's largest cryptocurrency exchange, has acquiesced to customer demands for the ability to hold assets with independent custodians. This move, a significant shift in policy, follows heightened concerns about the exchange's safety after a $4.3 billion fine by US authorities last year.

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The exchange now permits select traders to utilize independent banks such as Switzerland's Sygnum Bank and Flow Bank for asset custody.

Mounting Pressures And Regulatory Scrutiny

The decision reflects escalating unease among traders, particularly after the collapse of rival FTX in 2022. The US Treasury and Department of Justice's crackdown on Binance, which included a record fine and accusations of money laundering and breaching financial sanctions, has further intensified these concerns. The Securities and Exchange Commission has also charged Binance with multiple securities laws violations, heightening the need for secure and regulated custodial options.

Changpeng Zhao
Changpeng Zhao, former CEO of Binance, now watches from the sidelines (Photo: Benoit Tessier)

The Shift Towards Segregated Custody

The integration of external custody solutions offers traders enhanced security and regulatory oversight. Binance had been developing a banking triparty solution for nearly two years, aiming to mitigate counterparty risks. The arrangement involves the exchange, its customers, and a bank custodian, with traders able to deposit capital in US Treasuries, earning approximately 4% interest in the current high-interest rate environment. Sygnum Bank, responding to client requests, is also developing a product to reduce counterparty risk in crypto trading.

Market Dynamics And Future Prospects

Despite Binance's dominance, its market share has decreased from 55% to 30% in exchange volumes over the past year. Traders remain cautious, balancing the need for liquidity with concerns over safety and regulatory compliance. The adoption of independent custodians is a critical step in addressing these concerns, with Binance and other exchanges actively engaging with banking partners and institutional investors to enhance risk management and maintain their market positions.

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