Binance Moves Closer to Illegal Monopoly After Designing FTX Fails

Binance claims to be one of the few winners after FTX’s historic crash. The overnight disappearance of one of the exchange’s biggest competitors has further cemented Binance’s market dominance, which accounted for 55.1% of all Crypto asset spot trades even before FTX’s abrupt exit.

However, despite being one of its main reasons, the brand has so far shrugged off this dark chapter of the Crypto asset’s history without attracting much critical attention. From one perspective, this is fair: after all, Binance is not hyping FTX’s ledger.

However, Binance’s decision to publicly liquidate its entire holdings of FTT (FTX’s worthless token) ensured that FTX’s implosion was as spectacular as possible without any hope of a rescue or comeback. Regardless of how Binance intends to proceed with its liquidation, its announcement will cause the rest of the market to follow its lead, effectively causing a run on FTX and immediately forcing it into bankruptcy.

Whichever way you slice it, FTX’s losses — and consequent customer losses — are undoubtedly Binance’s gains. So what to make of the role of Binance and its CEO, Changpeng Zhao, in an event that left thousands of investors devastated?

FTX’s Loss Unquestionably Binance’s Gain

Leaving aside Changpeng Zhao’s role in FTX’s run, FTX’s demise would have been perfect for Binance.

On the one hand, it ensures that FTX occupies the front page of Crypto asset news for weeks on end and will continue to do so for some time. Binance couldn’t be happier about this: after all, it’s been less than two months since Reuters published a shocking investigation into the company that revealed it was falsifying documents under the leadership of Changpeng Zhao In order to evade legal sanctions obligations, it forced its compliance team to exit in pursuit of faster onboarding, and facilitated the evasion of US sanctions against Iran.

More importantly, however, the competition among Crypto asset exchanges has been greatly reduced almost overnight. Binance is already the largest exchange by trading volume: a few keystrokes on Zhao’s Twitter account knocked him off the fourth largest exchange and into one of the few to rival himself in terms of popularity one of the brands.

Given such an outcome, it is fair to question Binance’s motivation for announcing that it would be liquidating FTT on its balance sheet.

Changpeng Zhao Sells Liquidation to Twitter as Risk Management: After FTX Balance Sheet Leaked to CoinDesk, It Shows Sam Bankman-Fried’s Empire Is Virtually Insolvent, Backed Only by Holding Own Worthless Token FTT, Cautious The approach, according to Zhao, is to liquidate all of their FTT holdings.

He also stressed that the move was not an attack on FTX — though at the same time, he appeared to accuse Bankman-Fried of discrediting him and Binance in conversations with regulators.

But the reality is that if Zhao was as worried about the health and confidence of the industry as he said in an internal employee email, Binance could have taken any other route to escape the shackles of FTT. It could have slowly unwound its FTT holdings to avoid panic. If Zhao really wanted to be the savior of FTX and the wider industry, he could have quietly engaged in the discussion of Project Parachute instead of publicly announcing that Binance would save FTX, only to publicly cancel the deal hours later.

Instead, Zhao chose to push the dominoes, which he knew would bring many of the industry’s biggest players to their knees and put others in a state of apnea as they waited to see if the contagion would come to them too, and most importantly remove him Biggest competitor in Sam Bankman-Fried and the FTX empire.

The Formation of an Illegal Monopoly

It’s no surprise that Bankman-Fried didn’t believe Zhao’s narrative: He called Zhao his “sparring partner” and tweeted “You win” after it became clear that Binance had no intention of completing the FTX acquisition.

Lawmakers aren’t buying it either. Last week, a U.K. parliamentary treasury committee sought input from Crypto asset firms at a hearing examining the FTX debacle. Binance told the committee that the CoinDesk leak was to blame for FTX’s death, not any action by Binance. Still, Harriet Baldwin, the committee’s chairwoman, seemed to see through this, saying “it must have been obvious when the decision was made that it could lead to the collapse of FTX, which is one of your main competitors.”

Similarly, U.S. Senator Cynthia Lummis issued a statement early in the crisis saying she had “many questions about Binance’s acquisition of FTX, including potential market manipulation, lending activities, and whether customer funds and assets were secured.” appropriate protection”.

Binance’s growing market share may have been on the minds of lawmakers for some time. An estimate made when the FTX acquisition was originally announced suggested that Binance’s expected market share would exceed 80%—although the deal didn’t go through, the effect was essentially the same.

As Binance’s market share approaches 100%, it becomes more of a monopoly. It is not illegal in itself for a company to happen to enjoy an effective monopoly: it is perfectly acceptable to monopolize a market simply with a premium product. But the path taken to establish the monopoly and the effort it took to maintain it matters — which is why Binance’s role in the FTX debacle was so important.

For example, under the U.S. Sherman Act, which forms the body of U.S. antitrust legislation, a monopoly is illegal if monopoly power is obtained or maintained intentionally, as opposed to monopoly power acquired through superior product, business acumen, or accident history.

Violations of the Sherman Act carry severe penalties: companies can be fined up to $100 million, while individuals can face fines of up to $1 million and up to 10 years in prison.

If Binance were to come under antitrust investigation at some point in the future, it’s hard to imagine the government taking a positive stance on Binance and deliberately hitting one of its few remaining competitors.

However, antitrust cases are notoriously difficult to prosecute because it requires insight into the inner workings of businesses, which in most cases go to great lengths to protect their secrets. Unfortunately for Binance, the onus for taking enforcement action under the Sherman Act lies with the DOJ, which appears to have filed a lawsuit against the exchange.

FTX delisting is in the Binance playbook

The value of this market dominance goes well beyond PnL: Binance was once able to beat the fourth largest exchange in the industry, which is a testament to the power that this dominance allows.

This is no accident. Even before the FTX incident, Binance had made a concerted effort to grab as much market share as possible. Zhao told the crowd gathered at Web Summit 2022 in Lisbon that the bear market offers “a lot of opportunity” and that companies like Binance have the opportunity to “buy smaller competitors” due to falling valuations.

In 2020, they acquired CoinMarketCap, one of the best Crypto asset information tools available at the time. In 2021, they raced to buy the remaining assets of Voyager Digital, but were ultimately defeated by an FTX bid (coincidentally).

Binance’s appetite for market power goes beyond hard even. The company, which bought Forbes in February for $200 million, briefly tried to sue the outlet for defamation after it published a notorious story about Zhao’s cross-jurisdictional “Tai Chi” tactics. The lawsuit never made it to court, likely because the Forbes report turned out to be entirely true, as a recent Reuters exposé corroborated the same allegations.

Binance was also one of the financial backers of Elon Musk’s bid for Twitter, offering $400 million.

Its decision to help sink FTX is just the latest in a series of moves aimed at consolidating power in the industry, bringing Binance closer to becoming a monopoly force. Monopolies are disastrous for competition and ultimately for consumers, even if the beneficiaries do not play a role in their creation. In the case of Binance, controlling 80% of all Crypto asset volume makes them the de facto gatekeeper for each Crypto asset. If Binance decides to delist a token, that token will lose access to the vast majority of its markets. As such, much of the business in the industry is at the mercy of Binance’s executive team.

Binance demonstrated this most recently in September, when it announced that it would no longer support the popular stablecoins USDC, TUSD, and USDP, and would force any customers it held in these assets to convert to Binance’s own stablecoin, BUSD. . This leaves only two stablecoins available on Binance: BUSD and Tether, the latter being more or less relied upon by the entire industry, including Binance.

Although Binance said the move was to “improve liquidity and capital efficiency for users,” the move seems to be an unspoken attempt to grab the lucrative stablecoin market. Gary Gensler stated at the end of 2021 that although stablecoins accounted for about 5% of all Crypto assets, the proportion of Crypto asset transactions involving stablecoins exceeded 75%. Given that the primary use of these stablecoins is that they are pegged to the real-world dollar, there is very little room for stablecoins to coexist, making the competition between BUSD and other stablecoins a zero-sum game.

To illustrate the impact of Binance’s move on its competitors, Circle, which oversees USDC, said in its recent S-4 filing that the switch was partly responsible for $3 billion of the $8.3 billion decline in USDC issuance between June and 2018. . Ends September 2022.

For Binance, anti-competitive behavior is the name of the game

In fact, Binance is already in trouble for this type of anti-competitive behavior. Earlier this year, a record £9.9 billion ($11.97 billion) class action filing (the U.K. equivalent of a class action) was filed with the Competition Appeals Tribunal against Binance and three other exchanges (Bittylicious, Kraken and Shapeshift). It alleges that Binance colluded with co-defendants to delist BSV without cause (including forcibly converting BSV into other Crypto assets), thereby reducing or distorting competition in the UK.

On the face of it, the suit at least gave Zhao Changpeng a foothold. It’s clear from Zhao’s own tweets before and after BSV’s delisting that the delisting had nothing to do with the quality of the asset or the legitimacy of its goals. In April 2019, Zhao tweeted: “Craig Wright is not Satoshi Nakamoto. If this continues, we will be delisted” Soon after, he tweeted: “I also don’t like forks that lead to BTC The fact that it’s dipped below $6,000, it’s causing pain to a lot of people in the industry.”

Then, when Binance delisted BSV a few days later, he took to Twitter to urge other exchanges to follow suit — and they quickly did.

While it’s in its early stages, there’s a lot of influence behind the suit. The category – with an estimated 240,000 BSV investors – is represented by Marylebone’s Lord David Currie, who was the inaugural chairman of the UK’s competition watchdog, the Competition and Markets Authority. Given his many years of experience as a competition watchdog, Lord Currie said, “It appears to me that the described takedowns … were coordinated and not contested by the regulator, which raises serious consumer protection concerns. .”

Violating antitrust laws is one of the few ways Binance has grown

Binance expands monopoly by using its former competitors as fertilizer, because fertilizer is dirty and mean, but there are only so many ways for a company like Binance to pursue its competition, over the past few years by financial institutions Chase in and out of different jurisdictions world regulators and law enforcement:

  • They were banned from doing business in the UK in 2021 due to insufficient consumer and money laundering protections.
  • It has been warned by Japan’s financial watchdog for operating in the country without a license.
  • Thai authorities filed criminal charges against the exchange for operating in the country without a license.
  • Malaysia’s financial regulator has filed criminal charges against Binance, accusing it of operating without a license in the country.
  • In July, Dutch regulators again slapped Binance with a seven-figure fine for operating in the jurisdiction without registering with the Dutch National Bank.
  • In Singapore, Binance received a warning from the central bank and was banned from the country by the Monetary Authority of Singapore for violating local payment rules. Singapore police are apparently still investigating the exchange’s brief trading in the country.
  • In the U.S., the exchange is also said to be under investigation by the IRS, Department of Justice and the Commodity Futures Trading Commission (CFTC) for failing to implement legally required money laundering controls.

Despite growing regulatory concerns, nearly all public scrutiny has focused on FTX. This all works very well for Binance in the short term, but eventually, one of the swords hanging over Binance’s head will fall. The question is which comes first: Whether it’s a record-breaking class action lawsuit or the Justice Department’s charges against Binance executives, it seems likely that Changpeng Zhao will join Bankman-Fried’s ranks sooner or later.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide for learning more about Bitcoin (originally conceived by Satoshi Nakamoto) and the blockchain.

Information source: compiled by 0x information from COINGEEK, the copyright belongs to the author Jordan Atkins, and shall not be reproduced without permission

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