Binance Executes World’s First Triparty Agreement to Manage Counterparty Risk

Table of Contents

• Binance Addresses Institutional Investors’ Concerns
• Binance Continues Innovative Projects Despite Recent Woes

Binance piloted the world’s first crypto triparty agreement with a third-party banking partner to manage counterparty risk. The exchange said the initiative allows its institutional clients to hold collateral with a banking partner in the form of fiat. 

With its new project, Binance is addressing fraud concerns among institutional investors who prefer to have their capital solely under the control of the exchange. 

Binance Addresses Institutional Investors’ Concerns

In a press release, Binance announced it successfully piloted the “world’s first cryptocurrency triparty agreement with a third banking partner.” Binance explained the project allows institutional investors to continue trading collateral off-exchange in the custody of a third-party banking partner. 

“This first-in-crypto solution replicates traditional finance framework enabling institutions to fulfill risk management obligations by pledging fiat or fiat equivalent trading collateral with banking custodians,” the exchange said.

In a blog post, Binance further stated:

“The agreement allows Binance’s institutional clients to hold collateral with the banking partner in the form of fiat equivalent such as Treasury Bills, which has the added benefit of being a yielding asset.”

According to Binance, counterparty risk is the primary concern for institutional investors following the collapse of several centralised crypto firms, including FTX, in 2022. 

“Counterparty risk has long been a concern of institutional investors across the industry. 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. 

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

Binance Continues Innovative Projects Despite Recent Woes

The announcement of Binance’s triparty agreement comes days after the exchange announced it would pay a $4.3 billion fine to the Department of Justice and its CEO, Changpeng “CZ” Zhao, would step down from his position. Zhao formally stepped down and was supposed to be released on a $175 million bond and return to Dubai, but has been ordered to remain in the US for now. Richard Teng has been named as Binance’s new CEO. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.