Facebook and Libra Association, the governing body for its proposed blockchain, could provide a lesson in deal making to international diplomats and governments.
Ten months after raising the specter of an independent currency and blockchain that could have become an alternative to the existing financial ecosystem, the social media giant has seemingly backed down from its earlier promise. Seemingly, because the association has not entirely abandoned the idea of a digital currency on its blockchain even as it has firmly shut the door on allowing anyone to create a product or service on its network without permission.
The most prominent change to the whitepaper’s revised version is the decision to introduce fiat-pegged stablecoins (or coins that do not have constantly fluctuating values). To ensure the synchronicity in values between the stablecoin and its fiat counterpart, the former will be backed by reserves of the currency and government-backed securities. In practical terms, this translates to the launch of Libra pounds and Libra dollars on the network. The Libra coin itself will be backed by these digital equivalents of fiat currencies using a concept similar to that of the IMF’s SDR (Special Drawing Rights) in which each currency is assigned a special weightage.
The introduction of fiat stablecoins is accompanied by the decision to terminate the establishment of a permissionless network. This means that all entities operating on the Libra network will be vetted by a centralized authority, possibly the Libra Association. An independent or decentralized network, such as the one envisaged in the document’s original draft, would have allowed anyone to operate on the Libra network.
The latest revisions assuage concerns of policymakers who’ve repeatedly said that the Libra coin could threaten their domestic monetary policy by creating a parallel economy. They also allow the association to retain control over the network and its operations.
Based on the whitepaper’s latest version, the three of the network’s four roles – designated dealers, virtual asset service providers (VASPs), and certified VASPs – will be vetted and appointed by the Libra Association or its agents. The matrix of relationships will also ensure that the association exerts indirect control over unhosted wallets, the fourth category of participant, as well.
Not an “Underwhelming” Change
While the Libra announcement and subsequent Congressional appearances received widespread news coverage, the latest announcement has been dubbed “underwhelming” by crypto and mainstream presses. But that assessment misses the point of the entire initiative.
Over the years, Facebook has made repeated attempts to enter the domestic and international payment services markets. One could argue that the social network’s massive user base and reach across borders provided it with a vantage position in this market. Some of these experiments also introduced virtual currencies. However, the company’s previous forays failed. They targeted a narrow and geographically-specific customer base and focused on developed markets.
The Libra project has a much bigger canvas. It enables the social media network to leverage its massive user base in developing economies. A glance through the association’s list of members is testament to its scope. In fact, only three of the association’s 23 members can be classified as non-profits and humanitarian organizations. The remaining list is composed of venture capitalists and for-profit ventures, such as ride sharing services and e-commerce platforms, whose businesses stand to benefit from the venture. The inclusion of fiat-backed stablecoins, especially those of developed economies such as the United States and Great Britain, will only serve to strengthen rather than diminish their influence. At the same time, the Libra Association’s permissionless network will ensure that it is firmly in the driving seat. Whether it succeeds or fails, the Libra project has proved that Facebook’s ambitions in crypto and blockchain are as big as its social network.