For enthusiasts of Facebook’s proposed stablecoin Libra, there’s good news and bad news – which should we discuss first?
Getting the bad news out of the way up front, Libra’s launch has hit both regulatory and partnership speedbumps in the last few weeks. Most notably, the cryptocurrency’s regulatory issues have metastasized since this summer’s grilling on Capitol Hill. Unsatisfied with Libra co-creator David Marcus’ testimony, US lawmakers brought in Facebook’s CEO Mark Zuckerberg for a 6-hour grilling earlier this month.
In his typical robotic fashion, Zuckerberg sought to portray Libra as a tool to address global poverty and solidify America’s position as a global financial leader. In a direct appeal to American exceptionalism, he noted that “if America doesn’t lead on this, others will” and that “Foreign companies or countries may act without the same regulatory oversight or commitment to transparency.” In the ensuing Q&A session, Zuckerberg sought to lower expectations for the project, noting that Facebook “doesn’t know if Libra is going to work,” that it “is a risky project,” and that the team hasn’t even “locked down how it’s going to work,” a possible reference to David Marcus’ recent comments that Libra could ultimately be broken into multiple digital currencies for individual sovereign currencies, rather than single token backed by a basket of fiat currencies.
Despite Zuckerberg’s attempts to paint the digital currency in a good light, he received a generally frosty reception from US policymakers. As of writing, there are at least 24 bills related to regulating blockchain projects in Congressional review, with antagonistic names like the “Keeping Big Tech Out of Finance Act,” “Stablecoins are Securities,” and “To Prohibit The Listing of Certain Securities.” With Facebook reiterating that it will not launch Libra while regulatory concerns remain, the project’s projected 2020 launch date is looking increasingly farfetched.
Libra’s regulatory issues aren’t contained to just one side of the Atlantic. France’s Finance Minister Bruno Le Maire is on record stating that Libra, “can’t and…must not happen” and that “it is out of question.” As for the European Union as a whole, regulators have vowed to propose new, more strict laws to cover such cryptoassets. Even the UK, which was initially open-minded about Libra’s potential, has announced stringent new regulations, including requirements for the entire payment chain to show operational resilience and provide information for regulators monitor payments. With the G7 recently stating that no stablecoin project can go ahead until its proven safe and secure, Libra faces an uphill regulatory climb around the developed world.
In addition to navigating a morass of regulatory issues across the globe, Facebook is facing attrition among its corporate partners. Earlier this month, PayPal announced that it has “made the decision to forgo further participation” in Libra. PayPal’s decision opened a floodgate of sorts: since then, five more firms have dropped out, including respected payment processors Visa, Mastercard, and Stripe, as well as online marketplace eBay, and online payment platform Mercado Pago. While the departure of multiple high-profile corporations from the project is hard to spin positively, traditional fiat payment firms like Visa and Mastercard stand to lose the most if Libra ultimately thrives, so the relationship was bound to be fraught regardless. Time will tell if these firms ultimately regret their decision to abandon Libra…
In its defense, 21 (of the original 28) formally signed documents join the Libra Association overseeing the cryptocurrency. For what it’s worth, the Association claims that more than 1,500 entities have expressed interest in joining the project, with 180 meeting the organization’s membership criteria. With the intense regulatory scrutiny the scrutiny the projects has garnered to date, we’re skeptical that many high-profile corporations will be willing to sign on in the near term. By no means are we waving a distress flag for Libra as a whole, but continued delays and chilly regulatory receptions could potentially create a reputational “death cycle” where corporate partners to consider bailing from the project en masse.
So what good news could possibly hold a candle to the above headwinds?
Reports that Libra’s technological developments are moving along faster than expected, with partners already sending test transactions between nodes, certainly help, but the biggest positive catalyst for the Libra ecosystem may well be the development of the OpenLibra hard fork. In our initial evaluation of Libra, we dubbed it “not a true cryptocurrency” given its centralized, permissioned blockchain. OpenLibra aims to fix that, with a stated goal of becoming “an alternative to Facebook’s Libra, that places emphasis on open governance and economic decentralization.” OpenLibra will be pegged to and compatible with the original Libra blockchain, giving community developers an open-source, decentralized way to utilize Libra’s impressive technological infrastructure.
The project’s official website notes (and we generally agree) that, “despite pushback from nation-states, we believe that Facebook is likely to succeed in their goal. OECD Governments will be focused on their own outcomes, and in reality have little legislative power to leverage against a transnational force such as Facebook’s Libra.” OpenLibra’s tagline is even more blunt: “Not run by Facebook.” As we noted above, much of Libra’s regulatory risk stems from its close association with Facebook, so OpenLibra should benefit from less regulatory exposure in addition to the inherent advantages of a decentralized, open-source project.
As always, we’ll continue to follow both Libra and OpenLibra for new developments as the most-anticipated new cryptoasset in years meanders its way toward an official mainnet launch.