Binance, the world’s largest cryptocurrency exchange, recently announced the successful execution of the world’s first cryptocurrency triparty arrangement in collaboration with a third-party banking partner. 

According to the announcement, the solution allows institutional investors to securely store their trading collateral off-exchange with what Binance calls a “trusted bank.”

The triparty arrangement marks the initiation of a series of pilot projects introduced by Binance, making it the sole cryptocurrency exchange to offer such a solution. 

By addressing the issue of counterparty risk, a key concern for institutional investors, this arrangement replicates a framework commonly observed in traditional financial markets. 

It allows investors to allocate their crypto assets in proportion to their risk tolerance levels. Notably, the collateral held with the banking partner may take the form of fiat equivalents, such as Treasury Bills, offering the added advantage of being a yielding asset.

Catherine Chen, the Head of VIP and Institutional at Binance, emphasized the long-standing concerns of institutional investors regarding counterparty risk within the industry. Chen stated:

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, modeled 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.

According to the November 30 announcement, the solution ensures institutional clients can optimize their collateral and cryptocurrency investments, drawing inspiration from established trading practices in traditional markets.

Binance recently announced its decision to end support for its BUSD stablecoin on December 15th. This move follows an earlier announcement in August, where Binance stated its intention to gradually phase out support for BUSD after Paxos, the company responsible for issuing the stablecoin, was directed to halt its minting in February.

According to a blog post by the exchange on Wednesday, users will still have the opportunity to redeem their BUSD holdings until February 2024. Binance assured users that BUSD will always maintain a 1:1 backing with the U.S. dollar despite the discontinuation of support on the exchange. 

Paxos, the issuer of BUSD, has also confirmed that they will continue supporting and allowing the stablecoin redemption until at least February 2024.

Binance encouraged users to withdraw or convert their BUSD assets into other available assets on the exchange before December 15th, 2023 to facilitate a smooth transition. 

Users can trade their BUSD balances for FDUSD, a new stablecoin with zero trading fees. Alternatively, they can convert their BUSD balances to FDUSD through Binance Convert at a 1:1 conversion rate with zero fees.

Starting from December 31st, BUSD withdrawals will be disabled, and any remaining BUSD balances in users’ Binance accounts (excluding users from Japan, France, Italy, Poland, and Kazakhstan) will be automatically converted to FDUSD at a 1:1 conversion rate. 

After this date, users can still deposit BUSD into Binance and manually convert their BUSD to FDUSD at a 1:1 conversion rate until further notice.

Furthermore, Binance stated that the collateral assets of Binance-Peg BUSD will also be converted to FDUSD at a 1:1 conversion rate, which is likely to occur in December 2023. Binance plans to issue a separate announcement once the collateral conversion is fully completed.

Featured image from Shutterstock, chart from TradingView.com

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