Why We Can Thank Libra for Boosting Stable Coins and Clarity on Regulation
I can hardly remember when the announcement of a project kept the blockchain world that busy. When Facebook announced Libra in mid-June 2019, the euphoria was huge. The general public was impressed by the companies that supported the project and their noble goals: Thanks to the new crypto currency Libra, 1.7 billion people worldwide without a bank account would finally get access to the global financial system and be able to transfer money securely and cheaply. It was said that a new world currency would emerge, and some libertarians were even beginning to dream of a new decentralized world order.
The Status Quo Post-Euphoria
Today, a good five months later, the initial euphoria has turned into a hangover mood. It seems as if the promoters of the project had underestimated the reaction of the governments, regulatory authorities and central banks. And above all Facebook’s founder Mark Zuckerberg had misjudged how bad the company’s reputation had become with political decision-makers since the Cambridge-Analytica scandal.
The harsh criticism of the Libra project and the hearings in the US Senate have not helped to strengthen the project. On the contrary, around a quarter of the companies that initially launched the project have now dropped out due to regulatory pressure in the US, including Paypal, Visa, Mastercard, eBay, Mercado Pago, Stripe and Booking.
Is Libra dead now? It is hard to imagine that a company like Facebook, which has the resources to hire the world’s smartest teams, could misjudge a situation to such an extent, and it is more likely that the situation isn’t exactly the way we, the viewers, perceive it to be. However, I am convinced that similar projects will be realized within the next few years or even months. The Chinese are developing a stablecoin and cryptocurrency, and the central banks, which were initially so critical about the topic, are publicly thinking about e-currencies.
The Spirit of Decentralization
Thanks to Blockchain, the spirit of decentralization is out of the bottle. And I am grateful to the Libra initiators for facing the global discussion and bearing such a defeat. Governments, regulators and central banks all around the world are now forced to deal with the impact of these new technological opportunities. And thanks to Facebook, blockchain and crypto currencies have become a hot topic in boardrooms around the world.
In my opinion, the massive resistance of the state institutions towards the Libra project shows how much respect and fear they have of the disruptive potential of decentralization and the associated technology. When the G7, the central banks, the European Commission, the Financial Task Force or the Financial Stability Board shoot at Libra, this can only indicate one thing: The immense impact of crypto currencies and blockchain projects on the real economy, society and politics. The institutions are torn between the risks and the opportunities that blockchain offers.
The question is: Who determines what the future looks like? The private sector or the state? Because the essence of blockchain is that it allows other, decentralized forms of organization and can make intermediaries and central institutions obsolete.
The Role of Regulators and Traditional Banks
The Swiss regulator does not interfere in the debate by commenting. In keeping with its nature, it has issued guidelines for dealing with stable coins. Since there is no specific regulation governing stable coins, the Financial Market Supervisory Authority (FINMA) affirms its functional approach (“substance over form”) — where the economic function and purpose of a token defines the regulatory treatment — and follows the principle of “same risks, same rules”, while making its assessment on a case-by-case basis.
In addition, The Swiss National Bank (SNB) and the Bank for International Settlements (BIS) have signed an operational agreement on the BIS Innovation Hub Centre in Switzerland. They will examine the integration of digital central bank money — a kind of stablecoin — into a distributed ledger technology infrastructure. This new form of digital central bank money would aim to facilitate the settlement of tokenized assets between financial institutions.
Without Libra, global discussions about crypto currencies and stable coins would not have progressed so quickly and intensively. Regardless of whether Libra is implemented or not, Facebook has paved the way for the further acceptance of blockchain applications with Libra — intentionally or not.
– Mathias Ruch, founder & CEO of CV VC