On Friday, Binance.US was granted permission to invest some of its customers’ funds in US bonds. Which assets are affected and what does this entail?
Binance.US to Invest Customers' Fiat Currencies in U.S. Bonds
On Friday, Judge Amy Berman Jackson granted Binance.US (BAM) permission to invest certain customer funds in U.S. bonds as well as its own assets with financial investment advisers.
This is part of the framework of the dispute between BAM and the Securities and Exchange Commission (SEC) and follows a request from the company involving in particular the authorization to place customers' fiat currencies in Treasury bonds :
BAM is permitted to invest certain client trust funds currently held at BitGo in United States Treasury Bills that will mature on a four-week rolling basis provided that no third parties, including Binance Entities, are involved in the investment.
On X, Binance.US spoke out, saying the news would allow it to manage its corporate treasury more efficiently, but also noted that its customers' assets remained secure:
“As always, customer funds are guaranteed at a 1:1 ratio. Today’s decision frees our company from the restrictions imposed by the SEC and represents a victory for Binance.US and our community. We will continue to operate our business with the interests of our customers and the U.S. digital asset industry first.”
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However, while such a practice could be seen as a sign of seriousness, we can nevertheless observe some limitations in this approach.
Binance: the leading crypto exchange platform
A good idea or a risk of increased liquidity crisis?
According to the judge's order, Binance.US is required to retain “ enough USD on its platform»so that fiat withdrawal requests can be processed.as estimated based on historical withdrawals“.
While Treasury bonds are generally considered a safe equivalent to the dollar, this nuance implies that in the event of exceptional activity, users may have to wait to recover their funds. Indeed, history has shown us that such scenarios, while rare, are entirely possible.
For example, this was the case for Silvergate Bank, whose incessant withdrawals by its customers had accentuated its already delicate position. Indeed, since the bonds have a maturity, it can be difficult to part with them before they reach maturitysometimes forcing them to be sold at a loss, which can then create a cash flow shortage.
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However, the 4-week deadline in question here remains relatively short, while in the event of an exceptional situation, Binance.US customers would still have the option to move their funds in the form of cryptocurrencies to sell them elsewhere.
Furthermore, let us also recall that this liquidity reserve model is also adopted by many collateralized stablecoins, including USDT and USDC.
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Sources: X, Court document
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Since 2021, I have devoted my free time to seriously training myself on cryptocurrencies in order to acquire as much knowledge and credibility as possible. I often have the opportunity to conduct interviews with influential figures in the blockchain industry. I also conduct in-depth analyses on Web3 themes to offer exclusive content to Cryptoast readers.
Vincent Maire
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