Libra coin ico / Calibra Wallet / Another Cryptocurrency
July 17, 2019
The first thing that should be said about Facebook’s Libra proposal is it is thoughtful. In an industry characterized by initial coin offerings (ICO) seeking to raise funds for flimsy concepts on the basis of grossly inadequate disclosure, this is quite welcome. Whether you are enthusiastic or skeptical about the idea, at least Facebook has taken the time to think through a number of complex issues.
On the regulatory side, Facebook has designed Libra to address some of the basic problems with many previous creep to tokens. By separating the currency, Libra, from the investment token that will be used to raise capital for the project, Facebook is seeking to avoid having Libra classified as a security under U.S. (and other nations’) laws. If Libra were deemed a security, it is unlikely the project could get off the ground. While Libra is to be fully backed by a reserve of cash and cash equivalents, users of Libra will not receive any return from that reserve. Instead, any earnings will be used to pay for maintaining the system and issuing dividends to holders of the investment token.
The Information’s sources revealed that Facebook’s CEO, Mark Zuckerberg, has taken a great personal interest in the crypto project, while some others among the firm’s C-suite, such as chief operating officer Sheryl Sandberg and chief financial officer David Wehner, remained skeptical.
The Libra team reportedly presented three possible investment scenarios to Facebook leadership, ranging from low to high commitment, and Zuckerberg ultimately opted for the maximum investment route. Facebook CEO’s attention to building a payment system on top of the platform fits well into the proclaimed turn toward facilitating more personal and small-group forms of communication.
Token properties and uses
As a borderless currency with no transaction fees when used within the Facebook ecosystem (Messenger, WhatsApp and Instagram), the prospective coin is poised to make a considerable impact in developing countries, where the company is looking to primarily market it, according to The Information’s report.
While the social platform’s existing user base exceeds 2 billion people globally, a significant portion of it come from regions where traditional financial institutions are not quite reliable, and fees on cross-border remittance payments are often exorbitant. If users come to associate the digital coin in their smartphone messaging app with real value, Libra could become a game-changer in areas such as cross-border payments, casual Venmo-style transactions within friend groups and e-commerce generally, as more and more merchants join the realm of Facebook-powered social platforms to sell their goods directly.
Prominent blockchain advocate and Wall Street veteran Caitlin Long, who was among the first to share her vision of Facebook’s cryptocurrency in light of the latest news, wrote in a Forbes op-edthat “Facebook’s cryptocurrency will be a powerful force for good in developing countries.” Long argued that, by providing a more reliable store-of-value than central banks, Facebook’s stablecoin would pressure financial authorities into monetary discipline.
In order to maintain value, according to The Information investigation, Facebook’s coin will be pegged not just to one currency, but to a basket of several currencies and low-risk securities. The company’s head of financial services and payment partnerships for Northern Europe, Laura McCracken, has also confirmed this in an informal conversation with a reporter from German magazine WirtschaftsWoche, although nothing is known yet about the basket’s composition.
The Information’s report also specifies that Facebook plans to provide physical infrastructure — in the form of ATM-style terminals — to enable users to exchange the digital asset for fiat currencies. In addition, Facebook employees will be reportedly given an option to receive part of their salaries in the token, a detail that Gizmodo’s Victoria Song called the resurgence of the “company town dream” in the digital age.
Governance and decentralization
These days it is difficult to find a person who is not alerted to Facebook’s control of (and, sometimes, questionable practices of handling) user data. The fact that the company’s ambitions now extend to a comparable degree of control over online payments might appear sinister. Anticipating pushback from vigilant users and regulators alike, the company seems to have introduced a degree of decentralization into the way its cryptocurrency governance model is laid out.
According to The Information’s report, for the past few months, the social networking company has been talking to dozens of financial institutions and tech companies, soliciting their participation in an independent foundation tasked with the new crypto payment system’s oversight. The measure should promote trust in the system, as well as pacify antitrust regulators. Sunita Parasuraman, who has worked as Facebook’s corporate head of treasury operations, will reportedly manage the foundation’s treasury.
Unsurprisingly, the privilege of validating transactions on Facebook coin’s ledger will be reserved for a selected few. A license to operate a node on the network will reportedly cost outside entities $10 million each, and will come with a right to delegate representatives to the foundation and participate in the network’s governance. The network is expected to launch with 100 nodes, possibly with a prospect of further decentralization as more nodes join in. The Information’s sources claim that Facebook will use licensing fees to establish the initial pool of value for the coin.
It is not yet clear how node operators will be rewarded in the absence of transaction fees and The Information’s claim that Facebook is not planning to use the payment system for ad targeting. The latter notion can strain skeptics’ credulity, given the company’s business model and the wealth of valuable data on purchasing habits that the currency use will generate. One of the possible answers is the interest that will accrue from the assets underlying the token — and node operators will likely hold a lot of it.
Furthermore, Long predicted that Facebook will share the generated interest profits with all users and holders of its token in order to avoid high-profile accusations of simply pocketing it, which would immediately follow otherwise. As a collateral effect, Long writes, this might turn public attention to the issue of corporate welfare in the U.S. banking system: The Federal Reserve, it turns out, pays its member banks 2.35% for interest on excess reserves.
Having learned the hard way how much of a trouble regulatory scrutiny can present, Facebook has been working closely with financial authorities across the board to ensure compliance. The new cryptocurrency is believed to incorporate solid identity verification and have fraud prevention mechanisms in place.
According to Long, it means that Facebook will leverage a massive “tax data honeypot” for multiple governments, which may attempt to trade regulatory latitude for a certain degree of access to this data. In the big picture, the project will likely highlight the archaic character of many extant financial regulations and set in motion processes of gradually making them more up to date. The ride, however, will be bumpy, as the launch of Facebook’s payment system will spark heated debates about privacy and corporate power in the context of money.
What to make of this?
Over in the crypto Twitter-sphere, intense debate immediately broke out, as opinion leaders began to figure out who the new coin’s immediate competition might be and whom it will obliterate. Charlie Shrem, a founding member of the Bitcoin Foundation, opined that Libra is a direct threat to Ripple’s XRP:
Yet another opinion, perhaps more optimistic than most of the crypto industry, came from Mati Greenspan, a senior trade analyst at eToro, who contended that it is traditional currency that is threatened here:
Weiss Ratings’ lead cryptocurrency specialist, Juan M. Villaverde, formulated the central question somewhat differently in an email to Cointelegraph:
“Is Facebook really moving into the cryptocurrency space? Or is it merely porting some crypto technology over to the traditional fintech industry?”
Villaverde sees all indications that it is going to be the latter. However, it is not necessarily a bad thing, as Facebook seems to be serious about delivering user-friendly financial services to millions of users who have virtually no other access to banking.
The fact that deployment of the company’s cryptocurrency is set to start from India, the nation with the second-largest unbanked population in the world, suggests that Facebook is ready to go in that direction. However, we should make no mistake with regard to Facebook coin’s relation to decentralized digital currencies, Villaverde said:
“Facebook is looking to provide payment services to its customers. To do so, it must act as a counterparty and custodian for every payment that goes through its platform. It must have the last word on any payment users make or seek to make. Just like a bank, credit card company or PayPal. In sum, the Facebook coin will compete with established payment processors. Cryptocurrencies, like Bitcoin or Ethereum, are built from the ground up to disrupt them. The Facebook coin will be another layer built atop the existing financial system — another intermediary, another counterparty, plus all the corresponding risks. Bitcoin and other cryptocurrencies are slated to render every one of those layers obsolete.”
In her op-ed, Long offered a somewhat more optimisticvision of the Libra project. She thinks that Facebook’s cryptocurrency will become a Trojan horse that will eventually benefit bitcoin:
“Facebook’s foray into cryptocurrency will likely end up being a beneficial detour on the path to broader bitcoin adoption. Bring it on!”
Facebook’s initiative, Long predicts, will dramatically increase the pace at which people learn about cryptocurrency in general, and when the general public becomes educated enough, it will likely opt for bitcoin, which is scarce, rather than Facebook’s token, which is not.