Today is a red letter day in crypto; possibly as pivotal to modern technology, if not more, than the day Steve Jobs introduced the iPhone to a packed audience in San Francisco, California in 2007. In a seminal move that will surely accelerate the rate of retail adoption of cryptocurrencies, Facebook today announced the launch of its payments-focused cryptocurrency called Libra. And the funny thing is, it is not even a real cryptocurrency!
Well before the highly-anticipated official launch, we have opined earlier on multiple occasions on the potential impact of having a cryptocurrency that is directly backed by a network like Facebook, which boasts a gigantic user base of over 2 Billion users on its social media platform.
It is safe to say that Twitterati, chatterati and bloggerati will all be abuzz with Libra chatter over the next few days. Before we start working through the layers of the rich and complex mille-feuille/layer cake that Libra is, we start of with a summary of the features of the Libra token in three bullets.
– Although primarily driven by Facebook, Libra tokens will be issued and managed by a non-profit organization – Libra Association – which is domiciled in Switzerland and counts some of the leading enterprises in the tech, payments, venture capital, and crypto industries as its founding members and voters on governance matters. Over the next few years, the number of companies with control over the network is expected to reach 100 and no individual entity is expected to represent more than 1 percent of the vote. Is this the network decentralized enough when it eventually reaches a steady state? Surely nyet! But, is this effective given that some of the largest companies are expected to vote on governance related matters? Most likely, resoundingly oui!
– Libra is designed to function as a low-volatility, reliable and scalable cryptocurrency with the goal of banking the 1.7B unbanked population on this planet and providing low-cost instant money transfer globally ( Warning signs flashing already! Echoes of the ‘first, do no evil’- Google mission statement in this narrative). Libra tokens will be fully backed by interest-yielding, relatively stable and highly secure government bonds. Calibra is the user-facing mobile wallet application that will be used to hold and transfer Libra tokens between users. However, users are required to undergo AML/KYC checks before they can start using the Calibra wallet and users also have the option of letting the wallet service provider manage the private keys of their assets on their behalf. Libra tokens are expected to be listed on multiple regulated exchanges and users can buy/sell Libra tokens for fiat through web portals and mobile applications.
– Libra Association will introduce a security token called the Libra Investment Token to incentivize its partner companies to spread the adoption of Libra token and also to cover their operating expenses. Security token holders are expected to receive profits from the interest generated from Libra’s reserves. Only accredited investors are eligible to participate in this program. Enterprises looking to run the validator node are expected to make an investment worth $10 Million dollars in exchange for Libra Investment Tokens issued the association. The average cost of running a node is expected to be around $280k, effectively ruling out the possibility of normal retail investors and hobbyists from participating in the network. (On a tangent here, but would there be a market for services akin to staking solutions, with entities aggregating crypto from retail to make a play to become a Libra node? That could be one way for ‘true crypto’ to sort of fight back, you know, and keep the spirit of ‘insurgency’ going against the establishment!).
In terms of token design, Libra token is much closer to Ethereum than to Bitcoin. Akin to Ethereum, it has an account-based model and also has gas-based fee economics. Transaction fees will be paid in Libra tokens and the blockchain can support 1000 transactions per second, which will surely improve, either through organic or through inorganic efforts. The blockchain is smart contract compatible and will be opened to third-party developers for building applications. Censorship and regulatory approvals might be needed as Libra fully intends to comply with all local jurisdictions and regulations. Attempts to access the Calbra wallet from jurisdictions like India, where crypto is verboten, will be thwarted.
Over the next couple of days, we will scoop out the rich flavours of this layer cake, including, but not limited to;
– Stablecoin design v free-floating utility token design trade offs of Libra
– Facebook’s strategy for getting governments onboard;
– DPOS like design, implications; Too centralized to be a true ‘cryptocurrency’, as the term currently implies
– Network effects and why only FB could have pulled it off
– More medium of exchange than store of value/unit of account, maybe?
– What will this mean for general US antitrust regulation ( FB too big to fail at some point)
– What will this mean for crypto regulation
– What will this mean for stablecoins & fiat currencies‘Good’ crypto (eg. BTC) v ‘bad’ crypto/ ‘faux’ crypto (Libra, Ripple et al)
– What is Facebook aiming to achieve here? (Hint! It has nothing to do with decentralization or blockchain)
Medium term we think it is good for FB, but long term it could still be bad for FB. Overall this is likely a positive move for crypto in general.
Spare a thought for the Winklevoss brothers here. First he took Facebook from them; now, to the twins’ Gemini, he comes back with a Libra. Blowing our own twitter trumpet here, but this is definitely worth pointing out.