Reports of Libra’s death are greatly exaggerated
By Edward W. Mandel
As regular readers of this space know, I wrote previously on Facebook launching its kinda-sorta cryptocurrency libra. Whatever reservations any reasonable person might have about this particular social media platform or the corporation that owns it or the weasel who founded it, I didn’t want to dwell too much on those points. The more I think about the subject I see that the libra “stablecoin” might be good for IOUX hodlers and for ecommerce space.
“Facebook’s sudden interest in having a similar asset on offer does one thing for us that it would take us years to do for ourselves: get our business model in front of a mass market,” I wrote in July. “We know our place. It’s Mark Zuckerberg’s world and we just live in it. We know we’re not going to eat his lunch. But it was sure nice of him to offer to buy ours for us.”
First the bad news
Of the 28 founding members of the Libra Association, many of the more high-profile names have dropped out: Visa, Mastercard, eBay, Stripe and PayPal for example.
As if that weren’t bad enough, the Bank for International Settlements had to insert itself.
Under sponsorship from the Group of 7 — the grown-ups’ table of economic powerhouses — the central banks’ central bank released a report on stablecoins’ impact. Libra was clearly in the authors’ crosshairs, even if the project wasn’t mentioned by name.
“Cross-border payments remain slow, expensive and opaque, especially for retail payments such as remittances. Moreover, there are 1.7 billion people globally who are unbanked or underserved with respect to financial services,” the report concedes, then takes the position that stablecoins present only one, very risky potential solution.
That’s why, according to the paper, “no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks outlined above are adequately addressed, through appropriate designs and by adhering to regulation that is clear and proportionate to the risks.”
Since neither the BIS nor the G7 has any kind of regulatory or enforcement mechanism, these tasks fall to the sovereign governments or their affiliated monetary authorities.
So the U.S. Congress got into the act and the Managed Stablecoins are Securities Act of 2019 was introduced. The proposed law would regulate stablecoins as if they were securities. You know, like Federal Reserve Notes aren’t.
But that’s not the end
Of course, libra isn’t a security. It’s not even a true cryptocurrency. It’s essentially a payment platform.
But just because a bill is silly doesn’t mean it won’t pass. But don’t worry. This one won’t.
Much is made of the Managed Stablecoins Are Securities Act being introduced with “bipartisan support.” And it is true that the sponsor is a Democrat and the co-sponsor is a Republican. Notice the singular. Two first-term backbenchers on the Financial Services Committee, Reps. Sylvia Garcia (D-Texas) and Lance Gooden (R-Texas) caught the assignment to introduce this dead-on-arrival waste of ink on the House floor. The chamber immediately kicked it back to the committee. As of this writing, not a single new co-sponsor has put their name to the bill and no further progress has been scheduled.
The November 20 measure is seen more as a way of poking Zuckerberg in the eye than as a piece of actual legislation. Facebook’s CEO appeared before Financial Services four weeks prior, and his testimony was not well received. But that had more to do with political grandstanding than anything real. Zuck said, more or less honestly, that he couldn’t speak for the Libra Association. I don’t think it’s quite as independent of Facebook as he made it out to be, but it is held at arm’s length and there are many other partners involved in it, and they keep coming and going. (Mostly going, but still.) CNBC pointed out contemporaneously that Facebook shares actually increased 2% over the course of its boss’s Capitol Hill grilling.
It should also be noted that the Libra Association’s former members aren’t exactly talking smack about the project.
“It wasn’t an acrimonious divorce or anything like that,” PayPal CEO Dan Schulman told Fortune. “It’s just that they will start going down a road that we’re very interested in looking at and monitoring, and maybe later, there are ways we can work together. I wish them the best of luck on it.”
Meantime, other key members of the group have stayed in, including Coinbase and Bison Trails for example.
What’s to be done
Despite the news around libra being less bad than a first-order estimate might suggest, a lot of otherwise perceptive, insightful people remain skeptical about the entire project. The second-highest-profile criticism comes from R3 CEO David Rutter, who called the announcement of libra’s launch “really naïve” and “ridiculously stupid”.
The highest-profile criticism comes from President Trump.
“Facebook Libra’s ‘virtual currency’ will have little standing or dependability,” Trump once tweeted. Months before two congresspeople from Texas posited that stablecoins ought to be treated as securities, the view from one of 1600 Pennsylvania Avenue’s 35 bathrooms was that libra was a use case for the Office of the Comptroller of the Currency’s fintech charter. This regulatory option remains a solution in search of a problem. Every firm that ever applied for the fintech charter has since withdrawn its submission. But Zuck has since dined with the president at the White House — nobody knows if libra was even discussed — and Trump’s acting (for a year now) chief of staff-slash-budget director Mick Mulvaney is a well-credentialed crypto enthusiast. So who knows what the president is thinking now? This wouldn’t be the first thing he changed his mind about in a moment.
The project, meantime, keeps moving forward. CoinTelegraph’s Ana Alexandre reported in November that the Libra Network logged 51,000 transactions via 30 different test projects in its first two months.
So people can say what they want about libra — I think it’s eventually going to fly. Facebook’s partners can bail for now, but I believe they’ll be back or other, less risk-averse parties will step up. But, as I wrote previously, IOU.io sees alignment with this project.
“Libra is custom-made for private, permissioned, highly centralized blockchains,” I once wrote. “That, in itself, is not a bad thing, as long as we all understand that Libra users will have their transactions intermediated by a company with enough assets on its books to function as a central bank, but also one that has a checkered-at-best history of keeping your personal and financial data confidential. Check your account setting, is all I’m saying.”
Edward W. Mandel is a strategic advisor for IOU.io, an Ernst and Young Entrepreneur of the Year finalist, blockchain enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful blockchain technology projects.
IOU is a blockchain-based peer-to-peer platform designed to unify ecommerce transaction and customer retention processes, incorporating tradeable IOUs.. The platform can be found online at IOU.io and its community on Telegram at https://t.me/IOUCommunity.
