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07 Oct 2019

Facebook’s Turbulent Journey To Launch Libra

Written by OspreyFX News Team

Facebook’s turbulent journey to launch Libra

Social Media giant Facebook, alongside another 27 organisations announced the launching of the digital currency known as “Libra”, a permissioned digital asset powered by a new centralised Facebook-made version of the Blockchain and expected to be launched in 2020.

Libra is meant to be a “Stable Coin”, which essentially means that it will be pegged to fiat currencies to ensure price stability and minimum volatility, sharing the instant processing and security of cryptocurrencies and the volatility-free stable valuations of fiat currencies.

However, Facebook’s journey towards bringing Project Libra to reality has been threatened by regulators since the day of its announcement, affecting not only the fate of the new “stable coin” but also the possible involvement of some of its early investors.

The Libra Association

Facebook may be the mastermind behind the development of Libra, but given the “stable coin” status it’s been attributed with, the value of Libra will be linked to the value of real assets, storing a basket of currencies such as the Dollar, Euro and the Pound together with low-risk government securities. This is where the Libra Association’s role comes into play.

The Libra Association will oversee the validation of transactions that occur inside the Libra blockchain and managing the reserve it is tied to. To be part of the Libra Association as founding members, investors had to contribute with a minimum amount of $10m. So far, the Libra Association is structured by organizations from various industries, some of the big names behind the project include PayPal, Ebay, Spotify, Uber, Thrive Capital, Visa and Mastercard.

With so many big companies backing up the development of this new digital currency, it was hard to believe that Project Libra would be experiencing the large number of setbacks and obstacles that it has encountered so far.

 

War against governments and regulations

Politicians, central banks and regulators were already expressing their minds and stands on Libra just hours after Facebook announced its launch. It’s important to remember that even till this day, Bitcoin, the father of all cryptocurrencies, is facing attempts from governments and central banks to be eradicated due to its decentralised nature and other negative traits that these institutions like to attribute to the coin. Making Libra’s current struggle to materialise something not surprising or new, taking in consideration that Bitcoin was created by an unknown individual or group of individuals under the name of “Satoshi Nakamoto”, opposite to Libra who has of course Mark Zuckerberg, Facebook’s CEO, behind the project, making it easier for regulators to step in.

Yves Mersch, Luxemborgian lawyer and European Central Bank (ECB) executive board member said that the Libra ecosystem will be “cartel-like” adding that “The Libra Association Council will take decisions on the Libra network’s governance and on the Libra Reserve, which will consist of a basket of bank deposits and short-term government securities backing Libra coins. Libra-based payment services will be managed by a fully owned subsidiary of Facebook, called Calibra,” Check source.

Another big obstacle that Facebook encountered from regulators was the concern of Libra being used to finance criminal activities, including hacking and tax evasion. Of course, the main issue was to find out if Libra could be used or was going to be used for money laundering since Libra allows “pseudonymous” users to create multiple accounts not supported by their real identities.

As expected, these encounters with regulators create more questions than answers, is Project Libra the “Stable Coin” dream that it promises? Or just another project that will never see the light of day? Latest news support the second.

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The Libra Association founding members getting cold feet?

At the beginning, most ideas and plans seem like good ones, there’s no denying that Facebook’s vision of what Project Libra could be and the massive potential it has to change the financial world is exhilarating, however, sometimes reality needs to strike and demonstrate that not all plans or dreams are materialised without some obstacles and bumps on the way.

The fight Libra has had with regulators doesn’t support its development and much less its eventual launch in 2020, resulting in some of the main and key investors behind The Libra Association to have second thoughts on whether they should back the project or not. At the time of writing, 3 of the major investors have considered leaving the project.

Due to a huge amount of pressure from authorities of several countries and not having luck with regulators, companies such as Visa, Mastercard and PayPal are considering stepping back from the Project. Coherent coming from payment companies that already have deals and regulations for themselves and supporting Libra could seriously harm their relationships with regulators.

Even though Libra is meant to be a “Stable Coin”, separated from all the volatility cryptocurrencies often experience, many digital currency supporters and traders are asking whether regulators don’t want Libra to be launched cause it’s really a threat to the global economy or maybe because it’s one more asset that can affect their authority?