August 28th, a day that might go down in history books to denote when Binance, the world’s largest crypto exchange by volume, began its lending services, while at the same moment it came perilously close to crossing a major compliance land in the sand. The firm’s outspoken and charismatic leader and CEO, Changpeng “CZ” Zhao, has often said that he wants to work together with all governments and regulators to satisfy their compliance needs, but with this single move, his firm is now taking deposits and making loans, activities when combined under the same roof meet the definition of being a bank.
The strictest regulations on the planet have to do with who can have a banking charter and how the resulting banking institution operates to serve the needs of its depositors. The new program will offer customers, who have Ethereum Classic (ETC), Binance coin (BNB), and Tether (USDT) in their accounts, the right to participate in what amount to 14-day notes that will pay interest “in kind” on the maturation date. The annual interest rates posted today on the Binance website are 15%, 10%, and 7% for, respectively, BNB, USDT, and ETC tokens. Let’s assume for the moment that, by being the borrower, Binance can get around banking laws, but there are also lending regulations, too.
The roll out of the program mentions that the funds will directly fund the new margin-trading feature that Binance launched in July. This program allows for “3:1” leverage at undisclosed fee rates for Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Binance coin (BNB), Tron (TRX), and Tether (USDT). If you try to match up the lending with the margin trading, you will note immediately that there is not a one-to-one match. ETC, Ethereum Classic, is not in the margin trading mix, nor is Bitcoin, Ripple, or Tether included in the lending options. We suspect that more changes will be forthcoming.
According to comments made to Bloomberg by Jeff Dorman, chief investment officer at Arca, a Los Angeles-based asset manager that invests in cryptocurrencies:
If you can trade, custody and earn passive income all in one place, it creates a better user experience. This leads to stickier customers, and more revenue for Binance. In terms of the yield being offered, 15% is incredibly high, and is likely unsustainable as competition will always bring rates down.
Binance US does not have access to Binance Global.
Analysts are guessing that the higher return rate for the BNB Binance token is due to its recent 10% degradation in market value. The hope may be that account holders will buy BNB tokens to lend, thereby artificially creating demand for its internal offering. Josh Gnaizda, chief executive officer of Crypto Fund Research, explained to Bloomberg that:
The greatest impact on price will probably be on BNB, rather than on Bitcoin or other coins that can’t be used for loans. They need to keep growing their product offerings as their reach becomes limited by their attempts to launch compliant offerings. And more specifically, providing lending services based on BNB and Tether allows them to fund the expansion of their margin trading business.
More recent news from Binance can be seen below: