Binance risks getting on the wrong side of global competition watchdogs with its new $1bn industry recovery fund, a crypto antitrust expert has warned.
Thibault Schrepel, a professor at VU Amsterdam University and author of the 2021 book Blockchain and Antitrust, said the fund could be used as “an instrument to decide who, amongst horizontal and vertical competitors, can survive.”
Binance chief executive Changpeng ‘CZ’ Zhao announced the fund on 24 November, designed to help rebuild the crypto industry following the collapse of its peer FTX earlier this month.
It will involve an initial $1bn commitment from Binance – a figure which could rise to $2bn if needed. Other digital asset firms that also pledged funds include Polygon Ventures, Aptos Labs, Animoca Brands and GSR.
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Around 150 applications have already been received from companies looking for support. All co-investors in the fund will have the ability to review applications on a deal-by-deal basis.
Schrepel said the way the fund was structured means that regulators could raise questions in specific cases where applicants are declined funding.
“Knowing the companies running the fund have vested interests in many other companies in the industry, I wouldn’t be surprised if antitrust agencies were to investigate – in a couple of weeks – the reasons why the fund decided to refuse funding specific entities,” Schrepel said.
Meanwhile, information sharing is another concern for antitrust regulators, he added, given that the application criteria for companies hoping to access the fund include providing a business overview, historic financials, a future financial plan and an explanation of their current predicament.
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Should the information help Binance or other contributors decide on a business strategy, Schrepel said, it could be considered “competitively sensitive topics”.
“Typically, exchanging about pricing, production levels, and capacity is considered illegal. Should the members of the fund coordinate on these variables (even indirectly) after sharing the information they will obtain thanks to the fund, they are in the antitrust territory,” he said.
Binance’s announcement says that the fund’s participants, including Binance, “will review investment opportunities and make investment decisions independently.
In this case, Schepel said, the antitrust risk is “very much reduced”.
But he added: “In practice, it would be surprising the companies running the fund never communicate, if only to know who has committed to a deal and the Google form they set up indicates that “[a]ll submissions will be evaluated by the Binance Labs team… This makes Binance the central coordinating force behind this initiative.”
“In a nutshell: it’s risky business,” he said.
In response to the concerns, a Binance spokesperson said: “Each investment opportunity will be reviewed on its own merits by each [fund] participant acting on its own behalf, including appropriate legal assessments.”
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Binance has already drawn competition concerns in the UK this year, after the former chair of the Competition and Markets Authority sued it and four other crypto firms for nearly £10bn over alleged collusion to take a major cryptocurrency off their exchanges.
Lord David Currie, who chaired the CMA from 2014 to 2018, called the lawsuit a “wake-up call” for crypto bosses” in an interview with Financial News in September.
In its 24 November announcement, Binance said the initiative is not an “investment fund,” and that anyone who wants to contribute must commit their capital via a public crypto wallet address “to ensure transparency”. It can be funded through crypto tokens, fiat currency, equity, debt, credit lines, and other instruments.
Binance also said it would be open to “exploring other deal structures”, with regard to traditional financial institutions that may not be able to send funds to a public address.
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