Seeking Trader Trust, Binance Enables Independent Swiss Custodians

Facing growing pressure from traders and regulators, global crypto exchange giant Binance is now allowing select institutional investors and whales to hold their assets with independent Swiss custodian banks rather than limiting storage to Binance’s coffers or affiliated custodian Ceffu.

TLDR

• Binance is now allowing some large traders to keep their assets at independent custodian banks like Sygnum Bank and Flow Bank rather than just on the Binance exchange or with their affiliated custodian Ceffu.
• Traders have been pushing for independent custody options due to concerns over leaving assets on exchanges after the FTX collapse and the US regulatory crackdown on Binance.
• Using independent Swiss banks for custody is seen as safer in theory as they have regulatory oversight. However, some still have concerns about residual risk if Binance retains influence over decision making.
• The new setup allows traders to earn interest on USD treasuries held at the custodian banks while still trading on the liquid Binance platform.
• While convenient, Binance acting as an exchange, broker, lender and custodian all-in-one has worried regulators who prefer separation of duties to reduce risk.

The move comes in response to escalating unease over counterparty risks in the aftermath of rival exchange FTX’s high-profile collapse and Binance’s own run-in with US authorities resulting in a record $4 billion-plus fine.

While convenient, Binance’s one-stop-shop model of acting simultaneously as an exchange, broker, lender and custodian has long worried both regulators and traders.

Regulators prefer clearly separated duties to reduce concentration of risk, something mainstream financial service providers adhere to.

Meanwhile traders have grown increasingly cautious of leaving the keys to their crypto riches in the hands of any single entity after witnessing even the mighty FTX crumble rapidly amid liquidity issues.

By allowing holdings to be deposited under trusted and independently regulated Swiss banks like Sygnum and Flow Bank, Binance is bowing to rising demands for optionality.

The new setup allows large traders to earn around 4% interest on USD treasury assets held as collateral at these banks while seamlessly accessing Binance’s industry-leading exchange liquidity to execute trades.

Some traders feel this two-party arrangement with an external custodian is safer in theory than relying solely on Binance holding assets internally.

However, others still have some reservations given that despite having separate teams, Ceffu’s major decisions have allegedly continued to be influenced by Binance leadership.

Though relieved to have credible alternatives to custody now with Sygnum and Flow Bank, traders recognize residual risks remain if Binance retains any sway over policies or holdings at these independent providers.

With Binance’s market share of exchange volume dropping noticeably as traders diversify across platforms for risk management, the industry juggernaut has incentives to accelerate its custody flexibility.