“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.”
The investment so raised has to be invested, like an ETF, into a basket of liquid securities. New details have emerged regarding the constituents of the currency basket that will be used to back Libra tokens. According to Der Spiegel, Libra tokens will be backed by cash and govt. securities of five national currencies: US Dollar, GBP, Yen, SGD and EUR. The composition of the basket is as shown.
Libra could theoretically have added RMB as one of the currencies in the basket to deliver a diversified exposure to Libra Token holders. The RMB is also a natural counter-balance to the rest of the traditional ‘first-world’ portfolio constituents, especially the USD that makes up almost 50% of the basket. But the Chinese government’s guarded approach towards western tech giants, (even predating any potential response to the current Huawei kerfuffle), as well as strict capital control measures on its citizens and corporations, prevents Facebook from considering RMB as one of basket constituents. Another issue here is China’s own plans to launch a new state-backed digital currency.
Another alternative would be to simply a dash of bitcoin to the mix – that would help Libra gain more acceptance from the core crypto community. But bitcoin’s high volatility and lack of regulatory clarity would not make it possible for BTC to make the cut, at least just yet; especially given that Libra is essentially designed to function as a stablecoin with very low volatility in its price. From a portfolio perspective, however, a little bit of bitcoin might actually have a balancing effect when compared to other traditional currencies, much like in the case of the RMB.
With Binance also considering the launch of a libra-like global stablecoin, albeit that is much more sovereign friendly, the race for a global non-sovereign currency is heating up. The backlash that Libra has justifiably received after it announced the project due to Facebook’s abject reputation around user data management has actually made Bitcoin look good. The bottom line, however, is that Libra is some distance away from what might be acceptable to the extant gatekeepers – the central banks and governments across the world.
Synthetic Assets in DeFi: Use Cases & Opportunities by Dmitriy Berenzon