Last week’s guest on What’s Brewing in Antitrust with Level Legal’s Kevin Brzozowski was Evan Miller, a partner in Vincent and Elkins’ Antitrust Group, who discussed the intersection of antitrust law and blockchain/Web3 technologies, including implications for the future.
In addition to his broad experience in merger clearance investigations and antitrust litigation, Miller has expertise in applying antitrust principles to emerging technologies such as artificial intelligence and (as discussed in this interview) blockchain. Miller has written several articles on the topic, including A Tale of Two Regulators: Antitrust Implications of Progressive Decentralization in Blockchain Platforms in 2021.
Key Themes and Ideas
Miller discussed several considerations and implications related to antitrust law and blockchain/Web3 technologies, including:
- Evolution of Thought Regarding Blockchain: According to Miller, the initial belief that blockchain’s decentralization negated antitrust has evolved: “Some of the initial academic literature that was coming out talked about blockchain being the death of antitrust because blockchain is inherently decentralized,” he said. The focus has shifted to recognizing the relevance of traditional antitrust issues in the Web3 space and the potential for antitrust enforcement to protect its pro-competitive potential.
- Trump Administration’s Pro-Crypto Stance: Miller noted that The Trump administration – both the 1.0 and (potentially) 2.0 administrations – have a favorable view of blockchain as a pro-competitive technology. “During Trump’s first administration, blockchain was of significant interest,” he said. “He spoke publicly about blockchain as a pro-competition technology and particularly commented on the decentralized nature of blockchain and the tokenomics that distribute governance.” This involves protecting “little tech” and potentially unleashing growth within the crypto and Web3 space by loosening SEC enforcement. Conversely, the Biden administration issued an executive order encouraging agencies to consider innovation and competition related to digital assets but lacked specific comments on blockchain from the DOJ or FTC.
- Traditional Antitrust Theories Applied to Blockchain: Despite its decentralized nature, several traditional antitrust concerns can arise in blockchain, such as:
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- Information Sharing: Immutable ledgers within blockchains can raise concerns if competitors share competitively sensitive information (e.g., pricing data). “If you have a blockchain where multiple competitors participate in the blockchain and are providing or inputting data into the blockchain, and that data could be viewed as competitively sensitive, then there could be a concern about the sharing of that information,” said Miller.
- Boycotting: Permissioned blockchains could facilitate boycotts if participants collectively exclude a competitor, effectively cutting off their access to an indispensable platform.
- Cartel Enforcement: Blockchains can monitor and enforce cartel activities, like price-fixing, using smart contracts to automatically penalize deviations from agreed-upon pricing. As Miller noted, “It can even go a step further, and you could code into the blockchain via smart contracts to have an ‘if-then’ function that says if a participant in the conspiracy deviates from the agreed pricing, they’re going to be penalized in some way, and that’s going to be automatic.” He added, smiling: “But it would seem like a bad idea to have an immutable ledger that tracks your cartel-related activity. I’m not sure if this has ever become an issue, but if the DOJ got their hands on whatever was being used to track this, it would be a slam dunk case against that conspiracy.”
- Algorithmic Collusion: Algorithms that pull data from blockchains could contribute to algorithmic collusion if they lead to coordinated pricing recommendations.
- Challenges in Decentralized Governance: Decentralized governance structures, particularly Decentralized Autonomous Organizations (DAOs), present novel challenges for antitrust analysis, especially regarding liability.
- Self-Regulation and Its Pitfalls: While well-intentioned, the desire for self-regulation within blockchain networks can inadvertently lead to antitrust violations. The Ethereum staking example – where there was concern that a single staking pool operator could acquire a majority or even a significant minority of staked unions, which would allow them to control the network – illustrates this point. “There was this discussion among the leading liquid staking pool providers on Twitter, very public, where they were all talking about effectively limiting their market share,” said Miller. “That’s a pretty blatant per se violation of the end of trust laws.”
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Future Scenarios and Enforcement Focus
So, what does the future hold? Here are some of the future scenarios and focus on enforcement that Miller identified:
- Increased M&A Scrutiny: Increased merger and acquisition (M&A) activity within the Web3 space will likely attract greater regulatory attention, particularly regarding “killer acquisitions” (where a traditional platform comes in and acquires what can be perceived as a competitor to take it off the playing field) by established Web2 companies.
- Focus on “Gatekeepers”: Centralized entities acting as “gatekeepers” to decentralized networks (e.g., centralized exchanges, app stores, payment processors) will be scrutinized if they limit or foreclose Web3 companies’ access to users.
- Web3 as an Offensive Tool: Web3 companies may use antitrust laws as an offensive tool to address anticompetitive practices by gatekeepers or other actors that hinder their growth. Miller said: “So, if you are a Web3 company and this is happening to you, I can see folks being more vocal with the regulators…and saying, ‘Listen, we’re running into a roadblock here.’”
- Vertical Issues in M&A: M&A activity might lead to antitrust concerns, even without direct horizontal overlap, where services critical to blockchain companies are consolidated, as with cloud providers.
Conclusion
It was clear from the discussion that the convergence of antitrust law and blockchain technology presents a complex and evolving landscape and will continue to do so for some time. It will be necessary for Web3 companies to understand the potential applications of traditional antitrust principles and the unique challenges posed by decentralized governance and self-regulation. The anticipated pro-crypto stance of the “2.0” Trump administration will likely create opportunities for growth and increased regulatory scrutiny, making it essential for these companies to be proactive in understanding and addressing antitrust concerns.
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