Binance has signed a custody agreement with BBVA, Spain's third-largest bank, to enhance the security of its customers' assets. According to the Financial Times, this partnership allows the crypto exchange to hold its customers' assets in BBVA's custody infrastructure rather than directly on the exchange.
Under the agreement, customer funds will remain in U.S. Treasuries held by BBVA. Binance will accept these bonds as margin for users' trades. This ensures that even in the event of a potential exchange-wide crash, the funds will remain securely under BBVA's control. This practice, known as "separation of custody and trading," is widely used in traditional finance but has not yet become standard in the crypto industry.
Increased security measures after the FTX collapse
The collapse of the FTX exchange in 2022 caused a significant loss of confidence in the crypto industry, leaving billions of dollars stranded in legal proceedings. Following this incident, regulators and investors became more cautious about the storage of assets on exchanges. Following these pressures, Binance has also taken steps to move its custody services off-exchange. Having added independent custodians such as Sygnum and FlowBank to its system at the beginning of 2024, Binance has now added BBVA to this list.
This development demonstrates that Binance is moving away from its previous model of holding user assets in-house and is adopting a strategic shift to mitigate risks. Furthermore, following a record $4.3 billion fine paid in the US last year for anti-money laundering violations, the exchange has accelerated its compliance and transparency efforts.
BBVA's crypto attack
BBVA has recently been making significant strides in the crypto space. The bank began offering Bitcoin (BTC) and Ethereum (ETH) trading and custody services through its mobile app. It also advised private banking clients to allocate 3% to 7% of their portfolios to cryptocurrencies. BBVA's strong brand recognition could provide additional confidence in Binance, particularly for institutional investors in due diligence processes. This collaboration also demonstrates the growing interest of traditional banking institutions in the crypto sector. The Trump administration's strong support for the sector in the US and the MiCA regulations enacted in the European Union are strengthening the bridges between banks and crypto platforms.
Binance's move is part of the increasingly widespread "off-exchange custody" trend in the sector. In recent years, major exchanges such as Deribit, OKX, and Bitget have also developed solutions that offer automated clearing and secure transactions, where assets are held by qualified custodians.
The agreement with BBVA is considered a significant step that supports both investor security and the sector's maturation. Minimizing exchange risk, particularly for institutional investors, could pave the way for a broader investor base to adopt crypto assets.
Following these developments, the price of Binance's BNB increased by 2 percent.
