Banking Management & legal News

Will Libra be template for antitrust actions against permissioned blockchain networks?

antitrust anti-competitive

It took just two months after Facebook unveiled Libra for governments on both sides of the Atlantic to start questioning whether the Libra network and currency might pose antitrust concerns. It is Facebook’s access to 2.7 billion users that concerns the authorities. And Libra’s potential to compete with national currencies. 

In a recent article for the Michigan Law Review, academic Dr. Thibault Schrepel (Harvard & Utrecht University School of Law) outlined the potential antitrust issues relating to Libra. Some of the factors that Schrepel raised could be applied to other permissioned networks. Moreover, there’s a risk that any organization could threaten an antitrust complaint if it’s displeased with an industry-owned network.  

In other words, the threat of antitrust could be the Achilles heel of permissioned blockchains.

Libra is designed to be permissioned initially and eventually permissionless. That transition will happen when there’s technology available that can “deliver the scale, stability, and security needed to support billions of people.” It’s possible that may never happen, although Libra predicted five years.

Schrepel points out that permissioned blockchains are not anti-competitive per se. Still, compared to permissionless, the big difference is there is a group of people capable of directing the network in an anti-competitive manner. As a result, it’s open to scrutiny.

And other permissioned blockchains are concerned. At the start of every Hyperledger discussion, an antitrust statement is read out. And in talking to organizations, the topic of antitrust comes up regularly, usually how to avoid anti-competitive behavior.

Libra’s antitrust weaknesses

Schrepel runs through a list of areas where Libra risks falling foul of antitrust legislation. First, he focuses on collusion. 

Libra is an association of undertakings and hence could be construed as a cartel. Side agreements between members could attract attention. While Libra has not yet launched, there are already strong linkages between several firms. Some Libra Association members are venture capital companies that have invested in startups, which are also members.

There’s also a technical risk of collusion, claims Schrepel, because a small group of users validates transactions.

Next, there’s the risk of monopolization. Facebook’s wallet subsidiary Calibra will be the exclusive wallet on Facebook and WhatsApp. As a result, it will be the dominant Libra wallet and therefore hold additional influence over Libra. So Facebook being one of potentially a hundred Libra Association members won’t necessarily be antitrust protection.

As potentially the dominant wallet, Calibra also becomes a gatekeeper and can charge fees for the use of Libra. 

Competition authorities tend to use antitrust laws for privacy issues as well. The wallet subsidiary says it won’t share Calibra data with Facebook “unless people agree to permit such sharing.” 

There’s also the Libra Association’s role as gatekeeper, which gives it the power to change how the network works and eject or accept members.

Countering these issues, are potential vested interests of the competition authorities.

Conflict of interest?

One of the most interesting points raised by Schrepel, is whether competition authorities can be impartial given they are arms of a government where Libra potentially challenges the national currency. He points to the fears of the political elite of the growing power of Big Tech.

Schrepel is the editor of an antitrust blog, and has written two major papers re blockchain: “The theory of granularity. A path for antitrust in blockchain ecosystems.” And “Is Blockchain the Death of Antitrust Law? The Blockchain Antitrust Paradox.”

Other blockchain competition examples

Libra isn’t the first to attract antitrust interest. Down under, the Australian Securities Exchange (ASX) is implementing its blockchain-based replacement settlement system, CHESS. Multiple market participants, including share registrars, are concerned about the ASX abusing its position.

Elsewhere, there are two big consortia involved with international shipping, and both are treading carefully when it comes to antitrust. One is TradeLens, a joint initiative between IBM and Maersk, which was never incorporated

Dominant players in two sectors would have owned a TradeLens joint venture. The terms and conditions on the website state “the TradeLens Collaboration is not an entity”. Each of the companies markets the project and earns revenues from the partners it attracts.

Additionally, U.S. legislation puts significant restrictions on shippers talking to each other. As a result, TradeLens managed to get a limited antitrust exemption to let shippers publish and subscribe to data about cargo movements and some other activities. But there are still restrictions about discussing vessel capacity, rates and charges.

Across the globe, the Global Shipping Business Network (GSBN) has yet to get off the ground. The consortium has signed up three major shipping lines and several big ports which plan to be shareholders. But so far, they are only letters of intent as regulatory go-ahead is awaited.