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One year ago, Facebook announced its new digital currency, called Libra. We gave them one year to decentralize it. A year later, we have an update – as well as some happy financial results for those of you who invested. That Escalated Slowly
The most surprising thing is how slowly the Libra project has moved forward. Facebook’s slogan, of course, is “move fast and break things,” but that doesn’t work when it comes to reshaping the global economy, where the project has been mired in scrutiny from financial regulators.
First, I should be clear that it’s not a Facebook project. It’s technically owned by the Libra Association, a separate organization set up in Switzerland, which now includes 27 members: mostly tech companies like Uber and Spotify, and VC firms like Andreessen Horowitz and Union Square Ventures.
But it started at Facebook.
That’s why regulators have raked Facebook over the coals. As I pointed out a year ago, Facebook has over 2.5 billion users -- a third of the planet -- and introducing a new digital currency would make Facebook a global economic superpower in its own right. (Now, that’s thinking big.)
That's why regulators put the brakes on the project, scaring off original Libra partners like PayPal, Mastercard, and Visa. One year later, Libra has posted a new version of its white paper to address some of these concerns – we’ll call this Libra 2.0.
Libra 2.0: How it Works
Imagine you have a Libra “wallet” – like a bank account – that you set up through Facebook. You can “load it up” with your own national currency, then use it to buy products and services on Facebook, as well as many other partners, like Lyft or Shopify.
But you might choose to keep your Libra in the wallet. It’s easy to transfer to friends and family (like Venmo). It’s easy to transfer internationally (like sending an email). It hides all the complexity of exchange rates and transfer fees – it’s just one currency, Libra.
But you might keep your money in Libra for other reasons. Maybe you get a better savings rate than your bank can give you. Maybe it’s easier to take out loans. Maybe it’s just a better experience than your bank. (In fact, maybe the bank itself starts to look old-fashioned and out of touch.)
As it stands today, then, Libra 2.0 looks more like a digital payment system built on a blockchain platform. This makes it more like a competitor to PayPal, but built on a blockchain infrastructure (and as we all know, blockchain is better).
Over the last year, Libra made a few important changes to the original whitepaper:
1) Stablecoins. In the new roadmap, Libra uses stablecoins tied to specific currencies (like a US dollar coin), in addition to the “basket” of currencies used in their original proposal. Importantly, these stablecoins are backed by “real” assets: they will only mint a Libra USD if they have a dollar backing it up. Instead of a dollar sign, these will be written with the Libra logo and then the currency: |
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Libra will become the “meta money.”
2) Increased compliance. How do you keep Libra from being used for money laundering? In plain English, you’ll be able to use Libra only by going through a “custodial wallet or exchange” (like a bitcoin bank), or a do-it-yourself “Unhosted Wallet” which will have some kind of automated KYC/AML built in. It will be hard to use this anonymously.
3) More tightly centralized. The original plan was to move Libra to a permissionless (i.e., open or decentralized) system in five years. Regulators said that a permissionless system would make it too hard to track bad actors, so Libra has now abandoned those plans, and made it a private blockchain -- with plans to vote more members into the Libra Association at regular intervals.
In other words, we lost the battle for Libra to be decentralized, thanks to centralized governments.
In summary: Libra is becoming a kind of payment network, based on a private blockchain. It is backed by “real” currencies -- they have money in the bank to back it up -- but it will be far easier and cheaper to transfer money than today.
This is all a net positive -- though it’s not decentralized, which is a big negative. Because without decentralization, who primarily benefits?
Facebook.
How to Invest in Libra: Invest in Facebook
You can’t buy Libra today, but you can buy Facebook stock. For those who bought Facebook stock when the announcement came out (full disclosure: I did), here’s the performance over the last year: |
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From $193 to $235: that’s an 18% increase in one year. In my view, it’s not too late to hop on the Libra bandwagon. In fact, the CoronaCrisis has only increased the need for speed in our financial system.
The big challenge is that Libra is still theoretical. Although they have a working prototype, no one is “using” Libra in a practical way. We don’t know how long that will take, but my bet is that once the financial dominoes start to fall, things will move quickly.
We need to upgrade our monetary systems. As the Fed prepares banks for the perfect economic storm that may be coming, there has never been a better time to upgrade our financial infrastructure. Depending on how bad things get, we ordinary investors may need to transfer money quickly and easily, anywhere in the world. We will want options.
I’m disappointed that Libra is not decentralized, but there are always ways for prophets to profit. If you peer hard into the future, think about where things are going with Libra – and who’s likely to win at the end of this movie.
At the beginning, many people called the Libra project “Zuck Bucks,” as if it was Mark Zuckerberg’s personal money. But who do you trust to roll out a global digital currency more successfully: Mark and his team of Libra insiders, or the central banks? |
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Health, wealth, and happiness, |
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John Hargrave Publisher Bitcoin Market Journal
P.S. I'll be taking next week off, for a quick summer break. For our American readers, we wish you a happy 4th of July. |
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Hi Everyone,
I'm not sure whether we have any Chinese readers, but if you are in China, I'd like to wish you a very happy Dragon Boat Festival.
I was just reading up on this fascinating holiday, which apparently is a tribute to the ancient philosopher and poet Qu Yuan, who was set up by his peers, sent into exile, and then later drowned himself in the river.
Now, billions of people honor him by throwing delicious stuffed sticky rice dumplings called Zongzi and racing Dragon Boats in order to try and save Qu.
During the 2008 crisis, many large financial institutions, realizing that they had a lot of bad assets, decided to funnel some of the good money out of their system in the way of bonuses for bankers, dividends, and buybacks. It seems the Federal Reserve has learned its lesson and has become a bit more progressive, and so yesterday... |
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There are some who say this isn't enough, and that it still leaves room for some capital to flee the system, but at least it's a start. It's good to see that bankers will at least now be limited in their ability to throw dumplings out of a sinking boat, and let's hope they are not racing to save a system that's already been dead for many years. |
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Just the Stonks
Stocks are traveling withershins again today, as the boards read blood red. The Dow Jones Industrial Average is down more than 2% as of this writing. Still, we haven't really surpassed the lows from the brief sell-off two weeks ago so I wouldn't really call this a panic, and investors are able to maintain a high degree of composure.
Here we can see the three main stock indices in the U.S. Note how the S&P 500 is giving a serious test to it's 200-day moving average, a benchmark that the Dow has already broken, but the Nasdaq hasn't even come close to. This just tells you how much investors are gravitating toward tech for the most part. |
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The selling is certainly understood from a narrative side. We have Vice President Joe Biden gaining in the polls, and coronavirus news is getting worse. The U.S. broke 40,000 new cases in a single day for the first time yesterday.
Just as I'm writing, we've heard that Texas, one of the key swing states, has re-shut its taverns. This is a double headed blow to the market, both for its health and political implications.
We have seen the stock markets shrug off bad news before, as they remain quite detached from the underlying economy. This is a dynamic that we've pointed out a few times already, but I did want to highlight something I recently noticed.
This detachment seems to be confined to the stocks and high-risk markets alone. All other markets, including commodities, forex, and bonds have not really "recovered" since the March sell-off.
Here's a perfect example of that in the U.S. 10-year bond yields, which fell sharply during the initial COVID-19 impact but have not made any sort of attempt at a recovery since then. |
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Other safe-haven assets like gold, the Japanese yen, and especially the U.S. dollar, remain in high demand. However, other risk assets like crypto have also been appreciating, providing a wonky dynamic as of late. |
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Weekending
Though the stocks are looking at a weak end to a strong week, I did want to leave you with some fireworks for the weekend.
Here's the recording of Day 1 at the fantastic online CoinGenius summit yesterday. The recording is about 10 hours of airtime, and starts off with the amazingly talented Meltem Demirors with a bullet.
I'm on at approximately 1:25:00 on a panel with Wolf of All Streets' Scott Melker and CryptoBirb, but the entire thing just seems like pure fire. |
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Wishing you and yours a wonderful weekend and a very safe and sound Dragon Boat race.
Best regards, |
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Mati Greenspan Analysis, Advisory, Money Management |
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