After receiving a fierce and unequivocal pushback from regulators worldwide, an embattled Libra Association was forced to admit that its controversial Libra stablecoin may never launch at all. The Facebook-founded project isn’t going down without a fight, however.
As central banks in Europe and Asia—most notably China—push ahead with their own central bank digital currencies (CBDCs), Mark Zuckerberg’s social media giant is dusting itself off and trying again with a rewritten white paper designed to show it’s learned some harsh lessons since last summer.
The Libra Association, which serves as the independent governing council for the global cryptocurrency project, has applied for a payment system license from the Swiss Financial Markets Supervisory Authority (known as FINMA for short.)
It said “key items of feedback” have now been incorporated into its business plan. A major concern of central banks and regulators was that the Libra coin, pegged to a basket of global fiat currency and instantly usable by 2.7 billion Facebook customers worldwide, had the potential to undermine national currencies such as the U.S. dollar.
Now, the association merely plans to offer digitized versions of single currencies—paving the way for a Libra dollar (LibraUSD), Libra euro (LibraEUR), and Libra pound (LibraGBP)—in addition to the originally conceived, multi-currency Libra payment token (≋LBR).
In an eight-part tweet on April 16, David Marcus, head of Facebook’s Calibra digital wallet project and the company’s Libra frontman, pointed to four “notable evolutions” of the project, as well as an “updated whitepaper” reflecting those changes.
In addition, those new, fiat-denominated Libra-branded stablecoins will now use smart contracts rather than a basket of currencies to form the “Libra Reserve” backing the main Libra coin, said Marcus.
“We will collectively continue to work as hard as we can to enable people and businesses to send and receive money globally as easily as it is to send a text message and at a much lower cost,” he said. Marcus was No. 18 on the Modern Consensus 100 most influential people in crypto 2020 list. His boss Mark Zuckerberg was No. 1.
Marcus also tweeted that “members of the Libra Association have stepped up in a big way,” saying that Facebook is now paying less than 10% of Libra’s bills.
There are, it should be noted, 22 supposedly equal members of the association. Which means that Facebook’s equal share would be 4.5%.
Facebook face lift
Libra had also been hoping to launch with a “permissionless” system where no single entity would enjoy full control, but these plans have now fallen by the wayside. Depending on your perspective, this is either an unacceptable betrayal of what cryptocurrencies were designed for, or proof that the likes of Bitcoin have little risk of being undermined by what Facebook has to offer.
In another nod to loud protests in Washington and Brussels, the governing council said: “The Libra Association has enhanced the safety of the Libra payment system with a robust framework for financial compliance and network-wide risk management, as well as strong standards for anti-money laundering, combating the financing of terrorism, and the prevention of illicit activities.”
You could argue that this concession was nothing short of essential if Libra was to survive. The most vociferous critics on Capitol Hill, such as Rep. Brad Sherman (D-Calif.) had claimed last summer that Facebook’s project had the potential to be worse than 9/11—a comparison that raised eyebrows among other lawmakers. (Sherman was No. 35 on our 100 most influential people in crypto 2020 list.)
For its part, FINMA in Switzerland said its formal licensing process can now commence. The regulatory body added that the application filed by the Libra Association “differs considerably from the project originally submitted.”
Wooing politicians isn’t Facebook’s only problem right now. When the Libra Association launched, it counted some of the world’s biggest brands among its members—multinational companies including Mastercard, Visa, PayPal, eBay, Vodafone and Mercado Pago. As the full extent of the backlash became clear, all these firms—and others including Stripe and Booking Holdings—pulled out because of the political pressure.
In his April 16 newsletter, Mati Greenspan of Quantum Economics described the second iteration of Libra as “watered down,” adding: “[It] is an admission that even they are not able to replicate the immaculate conception of Bitcoin and that their blockchain will no longer be a serious competitor to any existing cryptoasset. It will however be a serious contender to PayPal, Venmo, and Square.”
He also noted the conspicuous timing of Libra’s announcement given that, on Tuesday, the internationally focused Financial Stability Board had called for the stablecoin market to face heavy regulation or an all-out ban. Greenspan hinted that Facebook’s move could have been in direct response to these proposals, or the tech giant may have had “something to do with the release of these new restrictions in the first place.”
Facebook now faces a nervous wait to see how central banks and politicians respond to its transformed plan. Some lawmakers will undoubtedly continue to push against Mark Zuckerberg because of his company’s dismal record on privacy.
Others will be bashing their heads against the wall because of how such criticism could stymie innovation at a time when China is aggressively pushing ahead with their own CBDC—a digital wallet is being tested in four cities, Binance CEO Changpeng “CZ” Zhao tweeted this week—leaving the U.S. behind the curve and struggling to catch up with a country that may be more opaque.