Binance risks getting on the wrong side of global competition watchdogs with its new billion-dollar industry stimulus fund, a crypto antitrust expert has warned.
Thibault Schrepel, a professor at VU University Amsterdam and author of the 2021 book Blockchain and Antitrust, said the fund could be used as “an instrument to decide who among horizontal and vertical competitors can survive”.
Binance CEO Changpeng ‘CZ’ Zhao announced the fund on Nov. 24, designed to help rebuild the crypto industry after its peer FTX collapsed earlier this month.
This will involve an initial commitment of $1 billion from Binance – a figure that could rise to $2 billion if needed. Other digital asset companies that have also pledged funds include Polygon Ventures, Aptos Labs, Animoca Brands, and GSR.
Around 150 applications have already been received from companies seeking support. All co-investors in the fund will have the opportunity to consider requests on a case-by-case basis.
Schrepel said the way the fund is structured means regulators could raise questions in specific cases where applicants are denied funding.
“Knowing that the companies that manage the fund have interests in many other companies in the sector, I would not be surprised if the antitrust agencies were to investigate – in a few weeks – the reasons why the fund decided to refuse to finance specific entities,” says Schrepel.
At the same time, information sharing is another concern for antitrust regulators, he added, given that application criteria for companies seeking access to the fund include providing an overview of the company, historical financial data, a future financial plan and an explanation of their current situation.
If the information helped Binance or other contributors decide on a business strategy, Schrepel said, it could be considered “competitively sensitive matters.”
“As a general rule, trading about prices, production levels and capacity is considered illegal. If fund members coordinate on these variables (even indirectly) after sharing the information they will get from the fund, they are in antitrust territory,” he said.
Binance’s announcement states that fund participants, including Binance, “will independently review investment opportunities and make investment decisions.
In this case, Schepel said, the antitrust risk is “very small.”
But he added: “In practice, it would be surprising if the companies managing the fund never communicated, if only to find out who entered into a deal and the Google form they have set up indicates that “[a]All submissions will be evaluated by the Binance Labs team… This makes Binance the central coordinating force behind this initiative.
“In a nutshell: it’s a risky business,” he said.
In response to the concerns, a Binance spokesperson said, “Each investment opportunity will be considered on its own merits by each [fund] participant acting on its own behalf, including appropriate legal assessments.”
Binance has already raised competition concerns in the UK this year, after the former chairman of the Competition and Markets Authority sued it and four other crypto companies for nearly $10 billion. sterling for alleged collusion to remove a major cryptocurrency from their exchanges.
Lord David Currie, who chaired the AMC from 2014 to 2018, called the lawsuit a “wake-up call” for crypto bosses” in an interview with Financial news in September.
In its Nov. 24 announcement, Binance said the initiative is not an “investment fund” and anyone wishing to contribute must pledge their capital through a public crypto wallet address “to ensure transparency.” It can be funded with crypto tokens, fiat currency, equity, debt, lines of credit, and other instruments.
Binance also said it would be open to “exploring other transaction structures,” in regards to traditional financial institutions that may not be able to send funds to a public address.
To contact the author of this story with comments or news, email Alexander Daniel