Binance Will Allow Institutional Investors to Keep Collateral Off the Crypto Exchange

Binance will allow institutional investors to keep their collateralized crypto used for leveraged positions, off the platform.

The exchange will enable investors to post collateral with Binance Custody, which will hold the assets off the internet, in cold storage wallets, Binance said in a statement on Monday. Once trades are settled, the assets would then become accessible to the user again.

Read more: Hot vs. Cold Crypto Storage: What Are the Differences?

The feature, called Binance Mirror, could be a major blessing for crypto investors trading in the leveraged markets as most crypto traders have to keep their collateral on the exchange for trading. However, using cold storage wallets means users can continue to trade crypto during volatile sessions without massive outflows on an exchange.

Users' assets would also be protected against on-chain hacks, to which hot wallets are vulnerable.

The collapse of Binance's rival FTX in November prompted fears about crypto exchanges' ability to keep users' assets safe, with regulators probing FTX over the misuse of customer funds.

"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," said Markus Thielen, head of research and strategy at crypto services provider Matrixport.

"However, this might not be enough as exchanges will likely have to work with external custodians to completely eliminate risks around collateral ownership," Thielen added.

The news was reported earlier by Bloomberg.

Read more: Binance Led in Market Share in 2022 as Volume on Centralized Exchanges Fell

UPDATE (Jan. 16, 12:44 UTC): Adds additional detail and context throughout. Adds comment from Matrixport.

UPDATE (Jan. 16, 15:42 UTC): Adds link to Binance announcement and removes Bloomberg references from headline and text.