Facebook is looking to get into banking. Or Cryptocurrency. Whatever you call it, Facebook is looking to launch a global currency: Libra.
The big problem is mashing together the current lack of trust in Facebook with the hype of blockchain technology. As a result, Libra talks little about Facebook and lots about blockchain.
It’s not clear that Libra is using blockchain like other cryptocurrencies and it’s not clear that it can be used outside of Facebook.
Bitcoin and other cryptocurrencies have failed as currency because so few merchants will take it as payment. Facebook is potentially allowing the widespread use of Libra by making it the payment of choice through the Facebook platform.
Unlike Bitcoin, Libra is intended to be stable in price. It’s value will be pinned to an underlying portfolio of bank deposits and government securities. The focus is spending Libra, not investing in Libra.
As for the investment part, the underlying Libra asset returns will be used to fund investments in the platform and any remaining returns would be paid as dividends to the early investors.
The details are a bit sparse, but it sounds like Libra would not be a security to the everyday purchaser, but could be a security to the early investors.
Those early investors are a consortium of participants that will provide the governance and manage the currency. They will also need to pony up at least $10 million in initial funding.
I assume that Facebook and rest of the Libra Consortium are going make sure Libra does not trip over securities laws.
The big problem is going to be money laundering, sanctions limits, and cross-country transfers. Libra is being touted as panacea for the unbanked. However, the unbanked include the criminal elements who do not have access to banking system. I suspect this will be the bigger challenge of Libra.
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