Binance announced a “Margin Risk Fund” for its margin traders on Monday. The insurance fund will be used to pay outstanding loans of liquidated margin accounts.
The announcement stated:
“As of now, 15% of all interest fees collected from margin borrowing will be allocated to the fund.”
Margin trading requires users to borrow loans from the exchange or use existing funds in traders’ wallets as collateral. Based on the margin used, the collateral is used up or not. Binance charges fees for borrowing margin loans, and fees collected from these will go into the risk fund.
This risk fund is an addition to Binance’s already existing SAFU [secure asset fund for users] fund. Like the risk fund, SAFU fund is an emergency fund that grows each day as 10% of all the trading fees goes into it. During the hack on Binance, this fund was used to pay the affected users.
Insurance funds play a huge part in an exchange’s life cycle and protect users against extreme situations like a security breach or a hack. All major platforms have insurance funds of sorts. BitMEX, for example, has a BitMEX insurance fund, however, regulated exchanges like Coinbase or Gemini have FDIC insurance for every user.
Typically, on an FDIC insured exchange like SFOX, each wallet can claim insurance up to $250,00. For Binance this is the SAFU fund and is different from the margin risk fund, which is closely related to margin trading/borrowing.
This comes at a time when Binance, one of the largest exchanges in the world, is launching a host of products and platforms to build the cryptocurrency ecosystem. Additionally, the Binance Pool also mined its first block on Saturday, and today, it was announced that the first product offering will be Bitcoin mining, using a FPPS [Full Pay Per Share] payment method.
