On June 18, 2019, Facebook made a splash in the cryptoasset industry by announcing its intention to launch a digital currency called Libra. The currency will be governed by the Libra Association, a group of 27 companies, non-profits, and academic institutions including prominent outfits like Paypal, Visa, and Uber. Libra is expected to be a stablecoin backed by a basket of low volatility financial assets. Much remains unknown at this stage – however, Libra could provide new pathways and accelerate the inclusion of the estimated 1.7 billion unbanked population around the world into the formal financial system.
By its scheduled release in 2020, Libra is expected to be incorporated into the Facebook ecosystem, including Facebook.com, Messenger, and Whatsapp. With its active user base of over 2.3 billion, this could understably create a huge impact not only in financial services, but also the cryptoasset industry.
In a paper published in February 2019, the Financial Stability Board identified BigTech firms as poised to disrupt traditional financial institutions. By way of their established networks and large customer base, proprietary data, and access to forefront technologies, they enjoy competitive advantages over financial services firms. By creating a Libra network on which innovative decentralized financial applications can be built, Facebook can reshape the future of payments and financial services with Libra as a potential medium of exchange.
More importantly, Libra itself could well spark the mass adoption of cryptoassets. Today, onboarding into cryptocurrencies requires access to fiat onramps, OTC desks, or exchanges, which can be cumbersome for the mainstream user. In a possible Libra world, Facebook or other marketplaces participating in the initial consortium could allow millions of users to easily earn the cryptocurrency by offering their products or services, in an environment they are already familiar with. This is like how AOL broadened the reach and impact of the Internet in its early days.
However, Libra’s future development is by no means easy. Regulatory uncertainty is the biggest obstacle. According to Binance Research’s first ever survey of its largest VIP and institutional clients, changes in global and local regulations are considered the largest single potential growth driver within which crypto projects can either work and flourish, or stall and wither.
Within days of its announcement, Libra is already being subject to regulatory scrutiny around the world. Bank of England governor Mark Carney said that he remains “open-minded” on Libra, but it will be subject to the “highest standards” in global regulations. French Finance Minister Bruno Le Maire said that Libra cannot become a sovereign currency, while German member of the European Parliament Markus Ferber warned that Facebook could become a “shadow bank”. Federal Reserve chairman Jerome Powell also commented that Libra will be looked at carefully, with high consumer and regulatory expectations.
With much remaining unknown, scrutiny abundant, and expectations high, it is probably too early to tell whether Libra will become a success.