One of the world’s largest cryptocurrency exchanges, Binance, is firm on its path; keen on thrusting the industry forward towards what Changpeng Zhao says is the “freedom of money”. This is even as Binance plans to launch user-to-user lending functions on its platform mid this month. In a recent meetup at London, the Binance leader, while answering a question said:
“We’re launching quite a number of other things. Binance Jersey will ramp up its service in Europe. We just launched margin trading. We are about to launch Binance Futures, but before that, around mid-August, we’re going to launch lending.”
Diversification of operations is proof of the progress the exchange business has made in the past few years. Cryptocurrency exchanges obviously have some storage capabilities. That said, many would assume that the primary role of these exchanges is to serve as an arbiter for crypto traders to transact.
Needless to say, the crypto economy has become more and more dynamic and these developments only affirm this growth. This proposal for users to lend to each other elevates the diversified functions of the Binance exchange even further.
Binance begins Margin Trading
Margin trading essentially means that you get to borrow crypto from a lender on the exchange. To achieve this, you leverage your own holdings to act as collateral for the loan. Accordingly, a user can take the borrowed funds and invest or trade. It goes without saying that you need a decent amount of knowledge on risk in lending. This is because the risk of loss or percentage of return is higher in margin lending.
Binance facilitates this kind of trading between users. With the upgrade to Binance 2.0 margin trading is now a fixture of the company landscape. This operation caters for two kinds of users. Either those who want to borrow crypto and increase their exposure in trading or investors who want to end and earn interest on their holdings.
The borrower obviously shoulders the most risk in case of loss in the market. Evidently, some would wonder how safe lending crypto is on a crypto exchange. Exchanges like Binance that offer margin trading make it so that you can’t withdraw the funds but can only trade of it. Binance intends to eventually scale up to 20X leverage in margin trading but will start with 3X.
This kind of trading is, therefore, a great addition to Binance and its operation. The fact that more users have funds for trading opens up new sections of the market. Margin lending makes the exchange have a banking dimension and adds a different dimension to operations. Going forward, the exchange stands to benefit from this operation as it will mean additional trading fees and greater liquidity.
Bringing In More Custodians
Custodians will add an extra dimension to Binance operations just like Fiat currency exchanges. A custodian is essentially an institution that holds customer’s securities to reduce risk of theft or loss. For a crypto exchange, this means a custodian of digital assets. With a larger operation, Binance is looking at bringing in more custodians to improve stability and security.
Tim Enneking, Managing Director, Digital Capital Management explained the relevance of custodians to crypto exchange as follows:
“Crypto is working towards the same desired end-state of where we are today with fiat exchanges. The market is forming the same separations of parties to create the triumvirate of broker-dealers, qualified custodians, and (crypto) exchanges working together.”
The scope of Binance functions goes beyond the lending operation. Binance has now cast its net wider to attract customers in many other ways. Beyond the exchange, Binance also has the Binance Labs platform. This branch is in charge of investments and conducting advanced blockchain infrastructure research. Accordingly, the network can work on related projects in the meantime.
Furthermore, Binance has plans to launch the Binance futures operation in a few weeks. The essence of futures is customers being able to speculate on price trends in the future. Futures are obviously a common feature of the stock market and have higher risk or reward depending on coin performance.
Incidentally, Binance also intends to build a charity arm. As a matter of fact, the charity has already reached over 30,000 beneficiaries. Going forward, the exchange intends to build on the progress and spread its blueprint in blockchain research. These will truly cement Binance’s position as a leader in this industry.