The world’s largest crypto exchange Binance formally unveiled a $1 billion “industry recovery fund” to help contain the damage dealt to the industry by the spectacular implosion of FTX. A few weeks earlier, Binance’s CEO Changpeng Zhao had played a pivotal role in the events that led to that collapse.
Zhao said that Binance would start selling off its holdings in FTT, FTX’s token, triggering a liquidity crisis that showed the business run by Sam Bankman-Fried to be nothing but a house of cards.
Though Zhao has since dismissed conspiracy theories that he had orchestrated FTX’s demise and that of its sister trading firm Alameda Research, the irony of Binance playing both doomsayer and redeemer in the same month has not been lost on observers.
More so than ever, the extraordinary sequence of events leaves Binance as consolidator-in-chief in the crypto industry — and there is a clear sense of relief at the company’s commitment to the role.
Dozens if not hundreds of crypto businesses have been affected by the FTX crisis. Some had lent money to the company, many have funds stuck on the exchange, and others had made investments in Bankman-Fried’s empire.
Binance’s emergency fund which has also amassed contributions from Jump Crypto, Polygon Ventures, Aptos Labs, Animoca Brands, GSR, Kronos and Brooker Group promises support for innovative and viable projects that face liquidity issues related to FTX. As of last week, it had already received 150 applications for aid.
There are, however, questions over whether the fund which Binance convened and seeded with an initial $1 billion could further concentrate power in the hands of the exchange. Binance did not respond to a request for comment.
The mechanics of the fund’s decision-making, as well as the extent to which its contributors communicate, will be key factors in determining the level of antitrust risk, Schrepel added. Binance said in its announcement last week that each contributor will have the opportunity to review opportunities and “make investment decisions independently of each other, on a deal-by-deal basis.”
On the risk of information sharing, Schrepel points out that the fund’s application form asks for a business overview, team overview, exposure to FTX and Alameda, historical financials, funding amount sought, the desired timeline for funding, the preferred form of capital, a financial model demonstrating a path to profitability post-funding and a brief summary of what situation the applicant is in amid ongoing market volatility.
“This information could help Binance and other members of the fund decide on a business strategy, thus being considered competitively sensitive topics, Schrepel said. Typically, exchanging about pricing, production levels, capacity and margins is considered an illegal exchange of information. 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.”