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On Friday, November 25, Binance announced a $2 billion industry recovery fund that will be used to buy distressed crypto assets and support crypto projects in crisis.
Over the years, Binance has established several safety nets to protect itself and its customers from black swan events like the Terra meltdown and the FTX collapse. For instance, in 2018, the exchange established the Secret Asset Fund for Users (SAFU), a $1 billion emergency cash reservoir that safeguards Binance customers in times of emergency.
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More recently, the exchange introduced proof-of-reserves, with several other prominent trading platforms following suit. This blockchain-based audit system enables users to verify their holdings with the exchange. The transparency such a system provides should help safeguard the industry from future FTX-like collapses.
Finally, last week, Binance also announced the Industry Recovery Initiative (IRI). It is basically a fund that will support crypto projects struggling with liquidity issues due to the FTX collapse. But what exactly is Binance’s industry recovery initiative, and how does it work? Tag along to find out.
Binance launches the crypto industry recovery fund
On Friday, November 25, Binance announced a $2 billion industry recovery fund that will be used to buy distressed crypto assets and support crypto projects in crisis. According to Binance CEO, Changpeng Zhao (CZ), the idea of creating such a fund comes in the wake of the disastrous collapse of the FTX crypto exchange, which has left several crypto firms reeling.
Through the recovery fund, Binance is looking to take up the role of an industry white knight. “As a leading player in crypto, we understand that we have a responsibility to lead the charge when it comes to protecting consumers and rebuilding the industry,” the company wrote in its official announcement blog. Besides financial assistance, Binance will also provide the affected firms with guidance on technical execution, fundraising, and more.
The main aim of the IRI is to support promising projects currently facing significant, short-term financial difficulties. If the fund is successful, its unique collaborative approach to rescuing struggling crypto firms should also help restore confidence in the web3 industry.
How does the recovery fund work?
It’s pretty simple — Binance has already announced its $1 billion contribution to the fund. This contribution is made in the form of BUSD and is stored on the following public address: 0x043a80999cEe3711D372FB878768909fbE7F71E6. The fund is open to the public, and donations are beginning to trickle in. Anyone can contribute to the IRI and donations can be made in stablecoins or any other tokens — it is entirely at the discretion of each participant.
Binance has already received more than 150 applications from companies seeking support under the industry recovery initiative. All those who contribute to the fund will be allowed to review these applications and make investment decisions independently of each other. This initiative is expected to run for six months, post which participants can withdraw any remaining unused funds from the public address.
Who is contributing to the recovery fund?
The recovery fund initiative has attracted some of the biggest names in the industry. For instance, the initiative was backed and supported by Justin Sun, the creator of the TRON blockchain and a global advisor at Huobi, another notable cryptocurrency exchange. Simon Dixon, one of the top investors in the Celsius network, which recently went down, also came out in support of the initiative and intended to contribute to the fund.
Binance has also announced that platforms like Polygon Ventures, Aptos Labs, Animoca Brands, Kronos, GSR, Jump Crypto and Brooker Group have already contributed an aggregate of $50 million, with more contributions expected soon.
Others follow in Binance’s footsteps
After Binance, Bybit, another popular cryptocurrency exchange, established a $100 million recovery fund to offer financial assistance to institutional clients in such moments of crisis. Under this initiative, the exchange will offer up to $10 million each to new and existing market makers operating on their platform.
Similarly, another popular cryptocurrency exchange, OKX, plans to launch a $100 million recovery package. The exchange stated that it would provide liquidity and technical support as and when needed to promising projects to help keep the industry afloat.
We’ve already seen one major casualty of the FTX collapse — BlockFi — filing for bankruptcy. Another crypto exchange — Gemini — warned of similar repercussions if it could not raise funds quickly. As such, the fallout from the FTX meltdown has affected several projects and created massive liquidity issues. In times like these, the industry recovery fund could rescue these firms and resuscitate a faltering industry. However, just how effective the IRI actually is in helping struggling projects and the crypto market as a whole, remains to be seen.