21st June 2019

Libra – the new Facebook supported crypto

It was rumoured that Rome was founded when the moon was in Libra. I’m not into astrology so I don’t really know what that means, but in this newsletter we look at this week’s unveiling of the new Facebook-supported Libra.

If you follow cryptocurrency at all, even in the slightest –frankly even if you don’t– you’ve no doubt heard of Libra. You may even have heard so much that you’re sick of it. I wanted to recap what I’ve read and offer a few predictions (which will likely be proved wrong, but will be interesting to come back to).

There was a lot of news on Tuesday, so let’s start with being very clear on what exactly happened. Facebook and a host of other well known companies finally released details on their intended consortia, whitepapers for their plans, as well as open source technology, named Libra. In addition to this, they launched a testnet for their Libra technology.

The Libra Association (the Geneva-based consortia) announced a fairly impressive list of founding members, below:

 

Source: The Block

The announced goal, is to move from the 27 founding members to 100 members in time, with each retaining no more than 1% (this includes Facebook). The hope is that this diversified set of members will allow for an independent and distributed (both by industry and geographically) group of sponsors. What was notable, is the lack of banks. The unsaid hope, is that in doing this, Libra will be able to move away from its current unofficial moniker “FaceBucks” or “Zuckbucks” with the intention of actually being independent.

Whitepapers, Libra took the well-trodden cryptocurrency route of jotting down all their plans in a whitepaper. In fact they did the really-too-crypto-thing of writing two. The first paper is a more technical whitepaper which discusses the planned functioning and operations of the technology and network. The second is the 2017-crypto-brand “business whitepaper”, which talks about use-cases and their goals of the project. The latter was, expectedly, heavily cited and criticised by a wide audience, including in the press. The technical whitepaper received some further analysis, from my perspective more thoughtful and balanced. What was clear is that it’s still early days, and there is a lot to be done. This point, too, was heavily litigated with many expecting the announcement to showcase a ready, or nearly ready, solution. One of the fun debates was whether the Libra blockchain, was in fact a blockchain. For a purist, the answer is probably a resounding “no”, for someone that is looking at the end result, you could understand the argument.

The Libra product: Libra boils down to two assets. The first is a stablecoin which is backed by a basket of real currencies (deposits and short term bonds), simply called “Libra”. The second asset is the “Libra Investment Token” (LIT) which will be a security owned by the 100 Libra Association members. Eventually the goal is to move from a permissioned (known) set of validators to Proof-of-Stake, and LIT will likely become the asset that is that staking asset. Because it is a staking asset, LIT will likely move up and down in price like other cryptocurrencies. In addition to holding a stake, LIT holders will also receive fees from Libra transactions, as well as coupon/dividend income from the underlying assets backing Libra (the fiat basket).

One thing that I found to be commonly misunderstood was what exactly was launched this week (in addition to papers): a testnet. Libra’s code base on Github went public about the same time as the release of the whitepapers and press releases, and with it was a preconfigured network that lets anyone play around with a “pretend-version” of Libra, and it’s new contracting language, Move. I set it up, it was pretty easy, and the functionality was limited. You can mint test-Libra on the network (currently I have about 14 million), which have no real world value. Libra have announced their intention to use this network to get solution providers to build and test eventual solutions, as well as putting the network through security and functionality testing. It’s very common in open source cryptocurrencies.

Despite the fact that Libra just came as a list of intentions and a play-network they got some pretty strong reactions from governments and regulators. Bank of England Governor Mark Carney, was perhaps the most welcoming, but noted that should Libra ever take off, it would likely face heavy regulations like any other financial services’ product. Reactions in Europe were more cautious, even defiant, with French Finance Minister, Bruno Le Maire saying that it was “out of the question that Facebook should create its own sovereign currency.” US lawmakers have also voiced their concerns, and have scheduled a hearing for mid July in Washington D.C. to review it, with some members of Congress calling on Facebook to halt plans until a time in which their plans can be reviewed. Pretty strong reactions for a few whitepapers and a testnet.

My take: I am generally pretty sceptical about a lot of things, and think that Libra has a long way to go on the technology front. That said, I really like the approach of walking up to the edge and letting some plans and a git repo of technology speak to the power of changing finance. Many people that have worked in, or followed cryptocurrencies and DLT are likely familiar with the press grabbing headlines of CEOs making bold statements about these technologies, only to find out that there aren’t many concrete actions going on one or two steps down. While there are lots of people in innovation labs or technology divisions trialling it at big companies, or startups trying to invent the future, the decision makers aren’t there yet. The picture is often even bleaker in government and regulatory agencies, with outsiders complaining that things are “moving too slow”. The fact is, most of the time, things weren’t moving at all. Libra may be that wake up call for mid-level business leaders and government and regulatory officials that this stuff is coming, whether they like it or not.

I am not fully convinced that Libra will be a success, but I do firmly believe that this week could be the best opening for the industry to get clarification and forward movement beyond hype and press releases. If we are able to do that, things may start to get even more exciting because of some crazy ideas from Mark Zuckerberg’s teams.

On my end, I am going to try to digest a bit more about Move and plan on coming back with a bit more information on what that looks like.

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