Binance allows investors to hold collateral off exchange

Binance allows investors to hold collateral off exchange

16.01.2023 14:12 (Updated 16.01.2023 14:01)
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by Aleksandar Đurić
2 min read

Institutional investors will soon be able to store their off-exchange collateral in cold wallets through Binance Custody, according to a recent announcement.

The move comes in the wake of dwindling trust in centralized crypto companies following the collapse of FTX. Binance is trying to restore that trust by keeping leveraged positions off the internet. Binance lets investors hold their collateral through Binance Custody, the institutional digital asset custodian that stores assets via Binance Mirror.

Through Binance Mirror, institutions lock a specified amount of their asset balance available in their Qualified Wallet, Binance Custody’s cold storage solution, and mirror it onto their Binance Exchange account with a 1:1 balance. Their assets remain secure in their segregated cold wallet for as long as their Mirror position remains open on the Binance Exchange, which can be settled at any time.

Implementing this feature provides significant benefits for cryptocurrency investors participating in leveraged markets. Such investors must typically deposit collateral on the exchange to participate in trading activities. However, using cold storage wallets allows them to continue trading during volatile market conditions without experiencing significant outflows from the exchange. In addition, using cold storage wallets can protect assets from potential hacking incidents on the chain — a known vulnerability of hot wallets.

Athena Yu, VP of Binance Custody, says about the new Binance solution:

Security is a top priority for institutions, who also desire the deep liquidity that the Binance Exchange offers. Binance Mirror brings the best of both worlds. We spent much of last year refining its operations to help our clients unlock the liquidity of their assets held in our cold storage. We’re very excited about where we are today and can’t wait to introduce our upcoming new features that will elevate Binance Mirror’s functionality even further.”

In the blog post, Binance Custody highlights that use cases increased significantly in the last quarter of 2022, with a 67% increase in assets mirrored from Binance Custody to Binance Exchange. Overall, more than 60% of Binance Custody assets are held via Binance Mirror, indicating the growing interest of institutional investors in off-internet custody solutions.

Markus Thielen, head of research and strategy at Matrixport, said about the announcement:

This an exercise to build trust among institutions that their funds will remain safe. Its a positive development that shows Binance is moving toward becoming an institutional-focused crypto exchange.

Author

  • An experienced journalist working in the film and video-game industries for many years. An enthusiast busy with learning new things about the world of crypto every day. Majored in English Language and Literature. Has a shrine in his apartment dedicated to Hidetaka Miyazaki.

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