Binance launches tri-party agreement to assist institutional investors in managing counterparty risks.

Binance and its banking partners have successfully executed the world's first tri-party agreement for cryptocurrency, allowing institutional investors to custody their trading collateral and over-the-counter trading collateral with third-party banking partners. Binance is currently the only cryptocurrency exchange offering such a solution.

What is a Triparty Agreement?

The so-called Triparty Agreement refers to a commercial transaction among three independent parties. In this case, it involves three parties agreeing to jointly hold and manage a financial asset. The participants include:

• Borrower: The client in need of funds
• Lender: The bank providing funds to the borrower
• Custodian: A third party that helps hold the financial asset

The borrower entrusts the financial asset to the custodian for safekeeping. The custodian is responsible for managing the financial asset and providing reports to both the borrower and lender.

Replicating Traditional Financial Models in the Crypto Space

Binance indicates that this arrangement directly addresses the counterparty risk issue, which is a top concern for institutional investors today. It replicates the common framework found in traditional financial markets, allowing investors to allocate crypto assets based on their risk tolerance. Collateral can take the form of legal equivalents such as U.S. Treasury bonds or even cryptocurrencies.

Catherine Chen, Binance VIP and Institutional Lead, stated:

Counterparty risk has always been a concern for institutional investors. We have developed a solution that mimics the traditional financial market approach, ensuring that our institutional clients can optimize their collateral and cryptocurrency investments.

Binance mentions that it is closely collaborating with several banking partners and institutional investors. Previously, Binance's new CEO Richard Teng emphasized leveraging their regulatory advantages to guide Binance's transformation from a tech startup to a traditional financial company during an interview with Fortune.