Competition Law and Tokenized Economy Market Power

Introduction

A tokenized economy is an economic system in which assets, rights, services, or economic interests are represented through blockchain-based tokens. These may include cryptocurrencies, stablecoins, tokenized securities, NFTs, tokenized real-world assets, governance tokens, utility tokens, and tokenized commodities or financial claims.

Competition law becomes particularly important because tokenized markets can produce new forms of market power. Control may arise not merely from ownership of physical infrastructure, but from control over:

• blockchain infrastructure and validation;
• token issuance;
• crypto-asset exchanges;
• wallets and custody services;
• token bridges and interoperability layers;
• smart-contract standards;
• stablecoin liquidity;
• tokenized-asset marketplaces;
• data and transaction histories;
• oracle services;
• governance mechanisms;
• application programming interfaces (APIs);
• network effects and liquidity.

The principal competition-law question is therefore:

When does control over a tokenized ecosystem become sufficient to create or reinforce market power, and when does conduct exploiting that position amount to an antitrust infringement?

I. Meaning of Market Power in a Tokenized Economy

Traditional market power generally concerns the ability of an undertaking to profitably maintain prices, restrict output, exclude competitors, or otherwise weaken competitive constraints.

In tokenized markets, price is often an incomplete indicator because many services are offered with zero monetary prices.

Market power may instead be reflected in the ability to:

1. control access to liquidity;
2. control transaction validation;
3. determine token listing or delisting;
4. impose discriminatory transaction fees;
5. restrict interoperability;
6. control wallet functionality;
7. manipulate access to essential data;
8. determine technical standards;
9. influence token governance;
10. exploit network effects;
11. lock users into an ecosystem;
12. disadvantage competing tokens or platforms.

Thus, competition authorities may need to examine non-price dimensions of competition.

II. Relevant Markets in Tokenized Economies

Market definition is particularly complicated because one tokenized ecosystem may contain several interconnected markets.

1. Token-trading market

The relevant market may concern trading services for:

• cryptocurrencies;
• stablecoins;
• security tokens;
• utility tokens;
• NFTs;
• tokenized commodities;
• tokenized real-world assets.

2. Crypto-exchange services

Centralised exchanges may compete with:

• decentralised exchanges;
• brokerages;
• wallet-based trading;
• peer-to-peer platforms;
• institutional trading venues.

3. Wallet and custody markets

Competition may arise between:

• custodial wallets;
• non-custodial wallets;
• institutional custody providers;
• exchange-integrated wallets.

4. Blockchain infrastructure

Relevant markets can involve:

• Layer-1 blockchains;
• Layer-2 networks;
• validators;
• sequencing services;
• node infrastructure;
• interoperability services.

5. Stablecoin markets

Stablecoins can create separate competitive markets because liquidity and merchant acceptance may generate substantial network effects.

III. Sources of Market Power

A. Network Effects

Tokenized markets frequently exhibit strong direct and indirect network effects.

The value of a token or platform may increase as more users, traders, developers, validators, merchants and applications participate.

For example:

More traders → greater liquidity → tighter spreads → more traders.

This can create a self-reinforcing competitive advantage.

B. Liquidity Advantages

Liquidity is particularly important in token markets.

An exchange with substantially greater liquidity may attract traders because users can execute large transactions with lower price impact.

This creates a possible liquidity feedback loop:

More users → more liquidity → lower transaction costs → more users → stronger market position.

A dominant exchange could potentially exploit this position through:

• exclusionary listing practices;
• discriminatory fees;
• preferential access;
• tying;
• self-preferencing;
• restrictions on competing liquidity providers.

IV. Token Lock-In and Switching Costs

Tokenized ecosystems may create substantial switching costs.

Users may accumulate:

• tokens;
• staking positions;
• governance rights;
• transaction histories;
• NFTs;
• loyalty benefits;
• smart-contract positions;
• reputation;
• ecosystem-specific assets.

Moving to a competing ecosystem may therefore require users to abandon accumulated benefits.

Competition authorities may examine whether technical or contractual restrictions artificially increase these switching costs.

V. Control Over Interoperability

Interoperability is a major competition issue.

Suppose Platform A controls a widely used token and prevents competing platforms from accessing:

• token balances;
• transaction data;
• APIs;
• bridges;
• wallets;
• smart-contract interfaces.

This could potentially disadvantage competitors.

The competition-law analysis may resemble traditional cases concerning refusal to supply, interoperability and access to infrastructure.

VI. Token Governance as a Source of Market Power

Decentralisation does not automatically eliminate market power.

A blockchain may be nominally decentralised while economic control is concentrated among:

• founders;
• core developers;
• validators;
• token holders;
• venture investors;
• foundation entities;
• infrastructure providers.

Concentrated token ownership can therefore create governance power.

For example, a large token holder might possess sufficient voting power to influence:

• transaction fees;
• protocol upgrades;
• validator rules;
• access requirements;
• token issuance;
• competing applications.

VII. Exchange Market Power

A major exchange can possess several forms of competitive advantage simultaneously.

Potential sources include:

• large user base;
• high liquidity;
• extensive token listings;
• custody infrastructure;
• proprietary trading technology;
• institutional relationships;
• payment integration;
• access to transaction data;
• brand/network effects.

Competition concerns can arise if the exchange:

• excludes rival tokens;
• favours its own token;
• conditions access on use of affiliated services;
• imposes discriminatory fees;
• restricts competing exchanges;
• engages in self-preferencing.

VIII. Self-Preferencing

A vertically integrated token ecosystem may operate:

Blockchain → Wallet → Exchange → Token → Payment system

If the operator favours its own products over competitors, authorities may investigate self-preferencing.

Examples include:

• giving an affiliated token lower transaction fees;
• ranking its own token first;
• providing superior API access to affiliated applications;
• delaying transactions involving competing tokens;
• restricting competing wallets.

The analysis would depend on market definition, dominance, effects, efficiencies and applicable national law.

IX. Exclusive Dealing

Token ecosystems may use exclusivity arrangements with:

• exchanges;
• wallets;
• merchants;
• payment providers;
• validators;
• NFT marketplaces.

An exclusive arrangement can become problematic where a dominant undertaking uses it to foreclose rivals.

Relevant factors include:

• duration;
• market coverage;
• exclusivity percentage;
• switching costs;
• alternative distribution channels;
• entry barriers.

X. Tying and Bundling

Tokenised platforms can bundle several services.

For example:

Wallet + exchange + proprietary token + custody + payment service.

Competition concerns may arise if users are required to use the platform's proprietary token or affiliated service to obtain access to another product.

Possible theories include:

• tying;
• bundling;
• leveraging dominance;
• foreclosure of competitors.

XI. Predatory Pricing and Token Incentives

Traditional predatory pricing becomes complicated where platforms distribute tokens instead of charging users.

A platform might offer:

• zero trading fees;
• token rewards;
• cashback;
• staking rewards;
• subsidised liquidity;
• airdrops.

Low prices are not inherently unlawful.

The competition inquiry would consider whether the conduct is capable of excluding equally efficient competitors and whether the strategy can subsequently be recouped or otherwise harm competition.

XII. Algorithmic Competition Issues

Token markets are highly dependent on algorithms.

Algorithms may determine:

• token prices;
• transaction routing;
• liquidity allocation;
• trading execution;
• token issuance;
• staking rewards;
• market-making strategies.

Competition authorities may investigate whether competing undertakings use algorithms to facilitate:

• coordination;
• information exchange;
• price alignment;
• market allocation;
• exclusionary strategies.

The fact that an algorithm made a decision does not necessarily eliminate the competition-law relevance of the underlying conduct.

XIII. Data as a Source of Market Power

Tokenised platforms can accumulate extensive information concerning:

• transaction history;
• wallet activity;
• trading behaviour;
• liquidity;
• token ownership;
• user preferences;
• smart-contract interactions.

A dominant platform could potentially use this information to disadvantage rivals.

Possible concerns include:

• discriminatory access to data;
• refusal to provide interoperability information;
• exclusive use of commercially important data;
• preferential use of data for affiliated products.

XIV. Essential-Facility-Type Problems

A competition issue may arise where a blockchain infrastructure provider controls an input that competitors cannot reasonably reproduce.

Examples could include:

• critical transaction infrastructure;
• dominant token liquidity;
• indispensable interoperability infrastructure;
• unique transaction data;
• dominant stablecoin liquidity;
• essential oracle infrastructure.

A refusal to provide access would need to satisfy the applicable legal test for refusal-to-deal or essential-facility conduct. Mere importance of an infrastructure service is not automatically sufficient.

XV. Merger Control in Tokenized Markets

Conventional merger thresholds may fail to capture some acquisitions in digital-asset markets because innovative token businesses may have:

• low turnover;
• substantial user numbers;
• valuable data;
• rapidly increasing token values.

Authorities may therefore consider whether existing merger-control rules adequately capture acquisitions of emerging token businesses.

Relevant transactions can include:

• exchange acquiring wallet provider;
• blockchain acquiring competing protocol;
• stablecoin issuer acquiring payment infrastructure;
• exchange acquiring market maker;
• token marketplace acquiring NFT platform.

XVI. Acquisitions of Potential Competitors

A major token platform may acquire a small start-up before it becomes a significant competitor.

Competition authorities may examine:

• current competitive position;
• future competitive potential;
• innovation;
• user growth;
• technology;
• intellectual property;
• token ownership;
• developer community.

The analysis resembles the broader competition concern surrounding acquisitions of emerging or potential competitors in digital markets.

XVII. Relevant Case Laws

Because fully developed token-market antitrust jurisprudence remains relatively limited, traditional competition cases involving digital platforms, payment networks, financial infrastructure, interoperability, exclusion and network effects provide important analytical precedents.

1. United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)

Microsoft was found to have engaged in exclusionary conduct designed to preserve its position in the operating-system market.

Relevance to tokenized economies

The case demonstrates how a dominant technology platform can use control over an important technological ecosystem to disadvantage emerging competitors.

For token markets, the principles are relevant to:

• platform control;
• interoperability restrictions;
• exclusion of rival applications;
• leveraging ecosystem power;
• network effects.

2. United Brands Company v Commission, Case 27/76

The European Court of Justice examined dominance and the abuse of a dominant position under EU competition law.

The case is significant for the concept of dominance and the ability of an undertaking to behave independently of competitors, customers and consumers.

Tokenized-economy relevance

The same conceptual framework can be applied when assessing whether an exchange, blockchain infrastructure provider or token platform possesses substantial market power.

3. Commercial Solvents Corp. v Commission, Joined Cases 6/73 and 7/73

The Court considered exclusionary conduct involving a dominant undertaking's refusal to supply an important input to downstream competitors.

Token relevance

The case provides an important analytical foundation for examining:

• access to blockchain infrastructure;
• token liquidity;
• interoperability;
• critical APIs;
• essential technical inputs.

A dominant token ecosystem potentially restricting access to a necessary input could raise comparable concerns.

4. Oscar Bronner GmbH & Co. KG v Mediaprint, Case C-7/97

The Court established a demanding framework for refusal-to-deal claims involving an alleged essential facility.

The Court emphasised factors including whether access is indispensable and whether duplication is realistically possible.

Tokenized-economy relevance

This is particularly important for:

• blockchain infrastructure;
• token settlement systems;
• interoperability networks;
• transaction databases;
• dominant digital wallets.

Not every technologically important blockchain constitutes an essential facility.

5. IMS Health GmbH & Co. OHG v NDC Health GmbH, Case C-418/01

The Court considered refusal to license intellectual property and the circumstances under which refusal could constitute abuse.

Token relevance

Tokenized ecosystems frequently depend upon:

• software;
• protocols;
• APIs;
• technical standards;
• proprietary databases;
• interoperability technologies.

IMS Health therefore provides an important framework for analysing access to technologically protected infrastructure.

6. Google LLC v Commission, Case T-612/17

The General Court considered Google's Android practices, including restrictions concerning the Android ecosystem.

The case is important for analysing digital ecosystem leverage, tying and restrictions imposed through platform architecture.

Tokenized-economy relevance

Comparable questions can arise where a dominant blockchain or exchange controls several interconnected services, such as:

Wallet → Exchange → Token → Payment service → Data service

The central issue is whether restrictions imposed at one level disadvantage competitors at another level.

7. Google and Alphabet v Commission, Case C-48/22 P

The litigation concerning Google's Android practices further illustrates the competition-law scrutiny of contractual and ecosystem restrictions in digital markets.

Token relevance

It is relevant to:

• ecosystem foreclosure;
• contractual restrictions;
• mobile or digital platform architecture;
• leveraging market power into adjacent markets.

Tokenised ecosystems can similarly involve several vertically related markets.

8. Mastercard Inc. v Commission, Case C-382/12 P

The case concerned interchange fees and competition in payment systems.

Tokenized-economy relevance

Payment networks and tokenised payment systems share important economic characteristics:

• network effects;
• multiple sides of the market;
• merchants and users;
• transaction fees;
• interoperability;
• access to payment infrastructure.

The case is therefore useful when analysing competition between token-based payment systems and conventional or competing digital payment networks.

XVIII. Competition Concerns by Conduct

XIX. China Competition-Law Perspective

For China, the Anti-Monopoly Law (AML) provides the principal competition-law framework.

The 2022 amendments strengthened China's competition-law framework, including rules addressing:

• abuse of dominant market position;
• monopolistic agreements;
• concentrations of undertakings;
• digital-economy conduct;
• algorithmic and technological means;
• data-related competitive concerns.

The digital-economy provisions are particularly significant for tokenized markets because market power may arise from technology, data, network effects and platform ecosystems rather than conventional physical assets.

A tokenized platform could potentially raise questions concerning:

Article 17-type dominance concerns

Potential issues include:

• unfair pricing;
• discriminatory treatment;
• refusal to transact;
• tying;
• unreasonable trading conditions;
• exclusionary conduct.

Monopoly agreements

Potential concerns include:

• token-price coordination;
• exchange coordination;
• market allocation;
• resale-price restrictions;
• coordinated trading strategies.

Merger control

Transactions involving:

• exchanges;
• wallet providers;
• blockchain infrastructure;
• stablecoin businesses;
• token marketplaces

may require examination under China's concentration rules where the statutory conditions are met.

XX. Decentralisation Does Not Automatically Eliminate Competition Law

One of the most important principles is:

Technological decentralisation and economic decentralisation are not necessarily identical.

A protocol can technically operate on a blockchain while economic power remains concentrated among:

• developers;
• token whales;
• validators;
• foundations;
• exchanges;
• infrastructure providers.

Therefore, competition authorities may need to investigate actual economic control rather than simply the architecture described in the protocol documentation.

XXI. Challenges for Competition Authorities

1. Defining the relevant market

Traditional product-market concepts may be difficult where users can switch between:

• exchanges;
• wallets;
• decentralised protocols;
• peer-to-peer systems.

2. Measuring market share

Trading volume may not accurately reflect:

• liquidity;
• user engagement;
• token holdings;
• developer activity;
• governance control.

3. Rapid technological change

Market conditions can change very quickly.

4. Cross-border operation

Token platforms frequently operate across jurisdictions.

5. Pseudonymous participation

Identifying actual controlling entities may be difficult.

6. Smart-contract governance

Responsibility can be dispersed between developers, token holders and automated systems.

7. Zero-price services

Traditional price-based tests may be inadequate.

XXII. Economic Indicators of Token Market Power

Authorities may consider a combination of:

1. token trading volume;
2. liquidity;
3. active users;
4. wallet concentration;
5. transaction volume;
6. validator concentration;
7. developer concentration;
8. token ownership;
9. switching costs;
10. interoperability;
11. entry barriers;
12. network effects;
13. access to data;
14. control of critical infrastructure;
15. duration of competitive advantage.

No single indicator necessarily establishes dominance.

XXIII. Remedies

Where competition-law infringement is established, possible remedies may include:

Structural remedies

• divestiture;
• separation of affiliated businesses;
• restrictions on acquisitions.

Behavioural remedies

• non-discriminatory access;
• interoperability obligations;
• prohibition of tying;
• removal of exclusivity;
• transparent listing criteria;
• non-discriminatory API access.

Technical remedies

• data portability;
• interoperability standards;
• open APIs;
• bridge access;
• protocol transparency.

Merger remedies

• divestiture commitments;
• access commitments;
• firewall arrangements;
• non-discrimination obligations.

XXIV. Key Doctrinal Framework

A useful analytical model is:

Tokenised Activity
↓
Relevant Product & Geographic Market
↓
Market Structure
↓
Network Effects + Liquidity + Data + Switching Costs
↓
Market Power / Dominance
↓
Conduct
↓
Exclusionary or Exploitative Effects
↓
Consumer/Competition Harm
↓
Efficiency and Pro-Competitive Justifications
↓
Remedy

Conclusion

Competition law in the tokenized economy requires extending traditional antitrust concepts to markets where tokens, liquidity, data, algorithms, governance rights and blockchain infrastructure can function as sources of economic power.

The principal competition risks arise from network effects, liquidity concentration, ecosystem lock-in, interoperability restrictions, token governance concentration, self-preferencing, tying, exclusive arrangements, data control, algorithmic coordination and acquisitions of emerging competitors.

The cases of Microsoft, United Brands, Commercial Solvents, Bronner, IMS Health, Google/Android and Mastercard provide useful doctrinal foundations even though most pre-date modern tokenized markets. They demonstrate that competition law can address market power created through technology, infrastructure, network effects and control over complementary markets.

The central analytical distinction is between legitimate technological or commercial success and conduct that uses substantial market power to exclude rivals, restrict access, exploit dependent users, or otherwise distort competitive conditions. In tokenized markets, that assessment requires looking beyond token price or market share to the underlying architecture of liquidity, governance, interoperability, data and network participation.