VW Blog

Zuck Bucks – Facebook’s Libra Currency

June 20, 2019   |   By Lacey Shrum

This week, Facebook released details on its long awaited project, “Libra.”

The goal is to create an alternative financial system allowing people to send money as easily as sending a text. This is different from Venmo. Venmo is a payment processor that moves money from one account to another. Libra is creating its own currency backed with other assets, which allows it to reach the 1.7B people in the world who do not have bank accounts.

For now, Libra is a digital currency with a permissioned (you need a club card and $10M to get in) blockchain backed by “a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”

The price will not be pegged to underlying currencies, but instead will fluctuate as the underlying value does. Another way of thinking about it is: Libra is going to issue a currency, back it up with other assets, and have a group of people manage those reserves to ensure stability. Sound familiar?

Why?

In its whitepaper, Libra lists many beliefs that spurred this product, most of which are shared by the crypto community. The primary two being 1) banking the unbanked and 2) facilitating low-fee money transfers globally. The whitepaper states that its goal is to provide a true public service. This cause is important, under-served, and necessary.

Extreme Reach

Facebook and its affiliates have a massive reach of users; 2.6B people interact with Facebook and Co. each month in most countries of the world. Notably excluded is China, where Facebook is banned for 1.4B people. The world population is roughly 7.5B people. Crypto just got a massive ad boost from Facebook. This could greatly impact cryptocurrency going mainstream. Many crypto enthusiasts are hoping this provides an easy on-ramp to other crypto assets and a PTP on their team to deal with the regulators.

Who Runs the Cash?

Before yesterday, currency mostly fell into two buckets.

  1. The first, a federally recognized and managed currency, or fiat. An example of this is the dollar, which the United States government manages.
  2. Second, a decentralized cryptocurrency, like bitcoin, which generally means there is no central organization managing the currency. Rather, it is software that runs as it was written, and the currency is maintained by the community that uses it.

With Libra, we have a private enterprise issuing and managing a currency. A private enterprise that has mastered the art of getting their user base into, obsessed with, and reliant upon their product. Massive talent and massive influence. Libra isn’t competing with Bitcoin here, Libra is competing with Central Banks.

I Woke Up Like This

With Facebook’s influence, we can expect the user experience of Libra to be flawless. That solves a tremendous problem that crypto currently faces. But, at what cost? As a reminder, Facebook is a $529B company that was built by our personal data.

Other Guests

This is not all Facebook. Libra is run by the Libra Association, a non-profit based in Geneva, which is currently headed up by big players and will have 100 “geographically diverse” members at some point. No member, including Facebook, can represent more than 1% of the vote.

Invite was Lost in the Mail

Sorry regulators, no love nor acronyms mentioned in this one either. Odds are they’ll show up to the party later and like any uninvited guest’s arrival, things will get awkward…

Money Making Money

The reserves that are backing the Libra will earn interest (capitalism!), which will go toward funding the Libra Association and then will go back to the primary investors in the LIbra Association (CAPITALISM!!)

Let’s Talk About…Money

After reaching the unbanked, I believe the biggest, and most impactful byproduct of this project is that it gets people talking and asking questions about money. What is money and why is it valuable? Who is in charge of it? How should it work and who should decide? For a history of money from rocks to fiat to crypto, The Bitcoin Standard is a tremendous resource.

My Questions & Concerns

I have questions, primarily around incentives and motivations. With Facebook, I always have questions about data, consent of the use of data, and privacy. The list of current Libra participants is mostly made up of publicly traded corporations and large VC funds, whose primary role is to make money for their investors. Our monetary system is one of the core tenants (and as Americans, core stability) of our lives and if we put that power into private enterprise, what does that mean? On the other hand, if Facebook doesn’t build this and provide a network effect, who will? I am also interested to see the valuation process and what visibility into the assets backing Libra is provided, specifically if and how these assets are leveraged.

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Posted in Blockchain
Lacey Shrum
Lacey is an associate attorney at Vela Wood where she serves businesses that use blockchain technology and cryptocurrencies, helping clients identify and mitigate particular risks arising out of this new technology – including blockchain strategy and use cases, capital raises and security issuances through alternative forms, code-as-a-legal-contract drafting, and ethics. For a primer on the why’s of blockchain, always start with the OG whitepaper.