Libra And The Internet Of Money

David Galbraith
Jun 19 · 5 min read
Owned by a consortium isn’t quite the same as decentralized

Libra is important, but almost the opposite of what it seems at first glance: it has less in common with blockchain, decentralization and banking and more in common with China, centralization and insurance.

Libra validates the assumption that the Chinese Internet model is fundamentally different: that it is based on transactions and that these transactions are having profound effects. In addition, it confirms our view at Anthemis — that it is Facebook rather than Apple (too proprietary), Google (caught-in-middle apps/OS) or Amazon (too bottom up, more like Alibaba) that is in the best position to challenge emerging Chinese dominance in online financial services. China is the real fintech story, and that story is divided between WeChat and Alipay, where WeChat looks like the eventual winner.

More of a reaction to WeChat than a validation of blockchain technology

Difference Between WeChat Payments and Libra

What Libra offers that its rival (WeChat, or more accurately Tencent’s financial services division) doesn’t, is a degree of privacy, a consortium approach and a proxy for multiple western currencies as a whole. Like WeChat it removes almost entirely the friction in payments. This friction is particularly prevalent in the US, from transaction fees via the use of credit card companies as intermediaries, who in turn channel the majority of transaction fees back to banks as an incentive to keep the status quo. Despite the fact that Visa and Mastercard seem to be Libra association members, it is a big long term threat to them if successful as it completely cannibalises their existing business. It is also a possible threat to credit card disrupters, like Affirm.

Libra also potentially removes cross-border friction and could mean a lot for remittances and small businesses in developing countries with unstable currencies where it offers more than WeChat can. However, don’t expect to be able to exchange Venezuelan bolivars for Libra tokens any time soon, it will be about cross-border flows in hard currencies, to start.


A negative cost of capital, like Berkshire Hathaway. In the 2018 Berkshire Hathaway annual shareholders meeting, Charlie Munger identified WeChat as one of the few potential competitors to Visa, Mastercard and American Express

More Like Insurance Than a Bank

Because Libra isn’t lending, it isn’t expanding the money supply in the same way that fractional reserve banking does beyond 1:1 issuance of tokens for hard currency deposits. It also means that it is making money from the float instead of from loan interest or fees. At scale this looks far more like an insurance business (specifically it looks more like Berkshire Hathaway, because the float covers potential claims — here wallet withdrawals — and so it could be considered to have a negative cost of capital). As it gets bigger it can take on some risk with investing the float.

A business model not based on fees (banks and neobanks in a low interest environment) or interest on loans will have a potentially massive impact on the emerging fintech ecosystem. Libra could (a) fizzle out or take longer than people think or It could (b) create a parallel ecosystem or it could even (c) disrupt the existing fintech ecosystem altogether. C is a distinct possibility, since the fintech ecosystem in the US and EU hasn’t disrupted incumbents, making it immature and vulnerable to Chinese investment and expansion. Now both the incumbents and the fintechs are potentially vulnerable to Libra if it is successful.


The last decentralization wave resulted in massive centralization. Sean Parker, the founder of the most famous decentralized file-sharing platform, Napster, ended up becoming President of Facebook

The End of Blockchain

“In terms of technology, Libra doesn’t represent the validation of blockchain or cryptocurrencies: in some ways it represents the opposite. Libra is not really a decentralized technology, it is a permissioned system (the ledger is controlled by the association members, unlike bitcoin which isn’t controlled by anyone). Nor is it an independent system of value, it is a stable coin whose level is pegged to other currencies — so again not like bitcoin whose value is a reflection of pure confidence in itself.

The last time there was a wave of decentralized technological innovation was nearly twenty years ago, when decentralised file sharing protocols (BitTorrent) represented the majority of all Internet traffic. The counter-reaction to this phase was precisely what created a massive wave of centralization and the consolidation of power into the giant Internet platforms. Sean Parker, the founder of the most famous decentralized platform of all, Napster, became the President of the most famous centralized one — Facebook. And so now history is rhyming, and Libra is not necessarily a validation of blockchain and decentralization but possibly part of a wave of consolidation. But Libra is not the beginning of this wave, one that could result in the Internet of money, but a move, consciously or not, to catch up with China. Few noticed — the Internet of money already happened, it was WeChat, not Bitcoin or blockchains or fintech startups in London, NY or the Bay Area, but now there is a move to create a rival.


Image result for token
Tokens have paved the way for Facebook in how to navigate between security laws and anti-trust

Regulatory Arbitrage

Much of Libra’s success depends on politics and regulation not market dynamics, and the early reaction indicates this could come quickly. Regulators (who in Europe, in particular, are not digitally savvy) could end up favouring Chinese platforms with legislation aimed at Libra — instead, they should embrace it and mold it. The consortium model could make it difficult for anti-trust measures — but the use of tolerance and no action guarantees against token issuers as a form of regulatory arbitrage to create a new central bank de facto, which could attract more attention.


The US internet model is based on ads, whereas the Chinese one is based on transactions

Sino-American Battle for Internet Hegemony

The popular perception is that we will see a continuation of US Internet hegemony, just as it has been for 30 years. The reality is the US Internet model is in the process of being challenged by the Chinese one. The Chinese internet is a transactional model and the US model is ads based. Paid content markets and content innovation is much greater in China (the podcast market is ten times the size of the US market and doesn’t rely on advertising) and because a transactional Internet is potentially more powerful than an ads based Internet (ads ultimately pay for transactions), the Chinese model could have ultimately won, unless a major US platform did something — which Facebook now have.

Anthemis Insights

Thoughts on the future of financial services from the Anthemis ecosystem

David Galbraith

Written by

Architect: I used to design buildings, now I design companies. http://davidgalbraith.org

Anthemis Insights

Thoughts on the future of financial services from the Anthemis ecosystem

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