What Did The Facebook Libra Hearings Accomplish?

One of the most interesting moments during the two days of hearing to understand and evaluate Facebook’s Libra project occurred when Congresswoman Katharine Porter (D-CA) asked panelists which regulators were appropriate for the cryptocurrency.

“I am not sure if this (Libra) is a problem for my investor protection subcommittee or my consumer protection subcommittee,” she said, referencing the confusion about whether Libra is an ETF or a payment tool.

The panelists, who were experts in law, academia, and cryptocurrency, were unable to provide a definite answer. “I think the problem is that many of our categories don’t fit,” explained Katharina Pistorus, Professor at Columbia Law School. “I think they (Facebook) are using language in a smart and discriminate way to avoid the regulatory framework we have”

And therein lies the crux of the problems facing regulators.

Over the course of two days of hearings, they debated, discussed, and criticized Facebook’s latest venture. But they ended where they started: knowing little about the project or its impact on regulation beyond publicly-available details.

David Marcus, head of Libra, promised that the project would move ahead only with “appropriate regulatory oversight.” But he refused to commit to moratoriums or pilot projects overseen by regulatory agencies. He was also unable to name the regulators who should be made responsible for Libra.    

To be sure, it is a bit premature to analyze the regulatory impact of Facebook’s project. If anything, unanswered questions at the hearing make clear the Herculean task that Facebook has set for itself in Libra. The social media behemoth will have to navigate through a matrix of regulatory standards from multiple jurisdictions. It will also have to contend with a number of issues, from privacy concerns to rights and bylaws for members of the Libra Association to separating data policies between Calibra – Facebook’s custodial wallet – and Facebook’s advertising operations.

Members of the cryptocurrency community celebrated the hearing because it provided visibility to crypto on a mainstream platform. Meltem Demirors, chief strategy officer at CoinShares and panelist at the hearing, repeatedly told the Congress and news media that Libra was not a cryptocurrency. That may be true but it also faces most of the problems facing them.

Like them, it does not fit neatly into an existing regulatory class. Questions from lawmakers about Facebook’s cryptoasset and blockchain can easily be extrapolated to those for other coins in the ecosystem.

For example, Congressman Jim Himes’ question about foreign currency risk inherent in Libra can be applied to other coins that claim to have a stable value. (MakerDAO, a high-profile stablecoin backed by an assortment of assets, lost its peg to the US dollar recently due to tumultuous markets). Similarly, Congresswoman Velazquez’s questions about whether members of the Libra Association are being handpicked by Facebook are mirrored in the case of other cryptoassets, where founders have successfully ousted members of their non-profit foundations. And the list goes on.

In the end, the hearing represented a coming-of-age for cryptocurrencies. Up until now, the narrative about them has mostly been dominated by news of scams and volatility. With Facebook’s entry, the conversation has turned to their place within the existing financial ecosystem