The largest cryptocurrency exchange, Binance, is building a recovery fund to help companies with cash flow problems. CEO Changpeng Zhao of Binance has encouraged developers who think their work meets the criteria to contact Binance Labs, the exchange’s VC arm. Nonetheless, he has not yet detailed the criteria that will be used to choose which projects will be granted the funds.
Is Binance’s recovery fund a timely move?
Zhao, who made the announcement on Twitter, says that the money will be used to prevent “further cascading harmful effect of FTX.” Zhao has hinted that for a project to qualify, it must prove that it is ‘not fraudulent.’ That means that Binance will probably be conducting a thorough due diligence on projects before investing in them. On November 11th, as a culmination of the events that surrounded FTX’s fiasco, the company submitted a petition for protection under Chapter 11 of the United States Bankruptcy Code.
Major companies in the digital asset industry have had to reassure the public of their liquidity in the wake of FTX’s demise. Already, there are indications that the so-called “proof of reserve” audits might not be as credible as they seem. The FTX crash follows a rough year for the industry, during which the crypto market has lost more than 60% of its value.
The most recent event is that there is extensive speculation over Crypto.com’s transfer of approximately $400 million worth of Ethereum to a safe ‘cold storage’ address. This transaction was supposed to send ETH to the cold storage but was sent to the wrong address. However, some sceptics claim that there’s more than meets the eye.
The recent action taken by Binance, along with “proofs of reserve” publications by other industry leaders, is essential in limiting the damage caused by the FTX crisis. But time will tell if the measure was timely or too little, too late for the cryptocurrency market.