OKX is joining forces with Standard Chartered to provide institutional clients with a regulated way to use cryptocurrency as collateral.
On Thursday, April 10, OKX (OKB) expanded its offerings for institutional clients by forming a partnership with Standard Chartered, supported by Brevan Howard and Franklin Templeton, to introduce a collateral mirroring program.
This initiative will allow institutional clients to hold their collateral with Standard Chartered rather than OKX itself. The exchange will then “mirror” this collateral into their accounts without ever taking custody of the assets.
The program, which has commenced as a pilot, adheres to the regulations set by Dubai’s Virtual Asset Regulatory Authority (commonly referred to as VARA). Standard Chartered will act as a custodian within this framework, operating under the oversight of Dubai’s financial regulators.
“Standard Chartered functions as the independent, regulated custodian in the Dubai International Financial Centre (DIFC), under the supervision of the Dubai Financial Services Authority, ensuring the secure storage of assets utilized as collateral,” stated OKX.
Reasons for Partnering with Standard Chartered for Custody
Interest in cryptocurrency trading is surging among institutional investors. For example, the CME Group recently reported a 73% rise in the daily average volume of its crypto futures market. However, many institutional clients are reluctant to trust crypto exchanges with their funds.
Exchanges face risks such as hacking and bankruptcy, a reality illustrated by the collapse of FTX. Such vulnerabilities expose institutional clients to counterparty risks, potentially resulting in substantial losses.
Additionally, regulations governing crypto exchanges tend to be less rigorous than those that apply to banks and other financial institutions. Thus, collateral mirroring helps institutions secure their assets with a trustworthy party.
Moreover, Standard Chartered is classified as a Globally Systemically Important Bank, which means it is subject to some of the most stringent regulations in the financial sector. Client funds are kept separate from the bank’s balance sheet, ensuring their protection even in the event of financial difficulties faced by Standard Chartered.