Binance Mirror Aims to Keep Traders Safe and Avoid Another FTX

Binance has launched a solution that will enable institutional investors to keep their collateral for leveraged positions off the exchange.

Binance Custody, the exchange’s institutional digital asset custody arm, officially has announced the launch of Binance Mirror on its blog. Institutional investors can now use this “off-exchange crypto settlement solution” to store their backing assets when making leveraged investments on the exchange.

Institutions must first pledge a certain amount from their Qualified Wallet, a cold storage solution provided by Binance Custody. With Binance Mirror, this amount is then reflected in the user’s exchange account at a 1:1 balance. The mirror position can be closed at any time, but as long as it remains open the assets remain secure in the segregated cold wallet.

Binance Welcomes Institutions

Although only officially launching now, Mirror adoption by institutional investors increased over the final quarter of 2022. During that period, the exchange saw a 67% increase in assets mirrored from Binance Custody. According to the exchange, over 60% of all assets on Binance Custody are held in Mirror accounts. 

Binance believes this indicates growing institutional confidence in its custodial arm’s off-exchange solution. Binance’s institutional arm said fourth quarter new client growth had risen some 17.4% compared to the previous quarter. 

According to the head of VIP and Institutional at Binance, clients have become much more conscious of having to manage risk. Although satisfied with their experience with the exchange, many clients also report facing “pressure” from their internal risk control. In order to scale their use, the world’s largest exchange is helping by working to diversify the on-exchange risks.

The development comes as Thailand’s Securities and Exchange Commission published new rules dictating that virtual asset providers introduce digital wallet management systems to ensure custody is secure. Custodians of digital currencies have six month to comply with the new rules.

Raised Risk Perception

Crypto exchanges broadly have had to increasingly manage their customers’ perceptions of risk following the collapse of FTX. Since FTX declared bankruptcy following a liquidity crush, other exchanges have been hustling to reassure customers their assets are secure.

In spite of waves of proof of reserves, exchanges have seen withdrawals continue to bleed them. The world’s largest exchange saw over billions of dollars in withdrawals over a single day in early Dec. Yet, in spite of losing accounting firm Mazars for its proof of reserves reports, Binance intends to continue expanding.