Facebook’s Libra has changed. Having been roundly criticized after its unveiling in June 2019, it has now updated its white paper in a bid to placate regulators and governments.
Most notably, the new look Libra gets rid of any intention to move to a permissionless ledger. It also introduces a range of stablecoins pegged to single national fiat currencies, in addition to the multi-pegged Libra stablecoin itself.
But while this will likely soften the stance of regulators, how will it affect cryptoassets and the wider blockchain industry? Well, the picture here is mixed, because even though Libra might help crypto adoption, initially, it still might be a major competitor too decentralized cryptoassets such as Bitcoin (BTC) and Ethereum (ETH) and might also harden the stance of governments towards these assets.
Unveiled last June, Facebook originally intended Libra to be backed by a mix of currencies and also government debt. However, regulators and central banks quickly became concerned that it could destabilize monetary policy, as well as enable money laundering and threaten user privacy.
As such, its newly updated white paper makes a number of concessions to regulators. Firstly, it takes pains to emphasize that it will comply with all applicable AML (anti-money laundering) and KYC (know your customer) regulations. It also moves from a multi-pegged single stablecoin to lots of single-peg stablecoins.
“The Libra coin will be a basket (i.e., an asset allocation container) of underlying central bank digital currencies represented on the network. This means that there will be a digital dollar, a digital euro, and a digital sterling all traveling on the Libra blockchain rails. This is analogous to today’s stablecoins traveling on the Ethereum rails,” explains ConsenSys’ global fintech co-head Lex Sokolin.
For him, the fact that Libra will bring in fiat-backed stablecoins means it won’t be a direct competitor to the likes of BTC or ETH that represent the value of the underlying networks, and are considered digital commodities.
However, for other industry figures, Libra’s stablecoins may compete with cryptoassets insofar as the general public may be more willing to trust a ‘reliable’ company like Facebook than a decentralized network.
“Levels of public trust in decentralized cryptocurrencies are still quite low,” explains Glen Goodman, the author of The Crypto Trader.
“The crypto boom & bust a couple of years ago has clearly left scars. New research from The Economist Intelligence Unit suggests people are more likely to trust a service like Libra set up by a giant tech firm than a decentralized crypto like Bitcoin.”
Still, while there’s a risk that Libra might steal adoption from Bitcoin, Interactive Investor’s Gary McFarlane thinks that Libra’s restricted nature may actually end up sending people towards genuinely decentralized cryptocurrencies.
He tells Cryptonews.com, “Libra, seen as a sort of roundabout diversion to a decentralized destination that others will arrive at in a different time, will enhance the currently existing value differential of truly global, frictionless (fees and transaction speeds aside), censorship-resistant cryptocurrencies.”
“In other words, Bitcoin will be a beneficiary, and more broadly Libra may lift all crypto boats,” McFarlane concludes.
By invitation only
The new Libra also drops all plans to move to a permissionless, open system, instead opting to remain a private, permissioned database. Nonetheless, Glen Goodman believes it will encourage the emergence of a whole ecosystem of digital money services, some of which may involve actual blockchains and cryptoassets.
“Libra has a lot of drawbacks, but crucially it will still be a digital platform that other services can be built upon,” he says. “Smart contracts will allow people to make business agreements with defined rules, executed directly by the Libra network.”
Lex Sokolin agrees that Libra will allow for additional services to be integrated with or built on top of it. Although he suggests that there still might be a few teething problems before it can fully get off the ground.
“Developers will need to test and scale the tech, run the hackathons, and volunteer the building hours to create an ecosystem of products and services on top of the network,” he says. “Libra made its codebase open-source when it launched in June of 2019, but it will take more than that to stress-test the system and reap the benefits of a dedicated community.”
Sokolin also notes that Libra’s technical implementation borrows a lot of ideas from Ethereum and other public blockchains, so there’s a possibility that some kind of interoperability could emerge down the line. Which would obviously be great for driving the general public towards blockchains and crypto.
Also, Binance Research, the research arm of the major crypto exchange Binance that has its own interests in the stablecoins business, said recently that if “≋LBR [Libra] were to become widely used with products directly quoted in ≋LBR, we could imagine new stablecoins, both fiat-backed (e.g., collateralized stablecoin) and crypto-backed (e.g., Maker), replicating its peg on multiple permissionless networks like Ethereum.”
A regulatory question
Is there a risk that Libra’s capitulation to regulators will make said regulators (and governments) take a harder line on cryptoassets and public blockchains? Glen Goodman seems to think so.
“There is now a danger that national authorities will feel it’s more acceptable to clamp down on the independent cryptocurrencies like Bitcoin if there is an ‘official’ alternative like Libra.”
However, Lex Sokolin believes that governments were already taking a harder line, regardless of Libra.
He says, “The government crafts regulation complementary to the technology, not the other way around, which is what Libra is facing.”
All of which might mean that Libra won’t have much of a negative impact. And even if it isn’t really a cryptocurrency or a blockchain, it may ultimately boost wider blockchain development and turn more people onto decentralized cryptocurrencies.