Market Commentary by Patrick Heusser, Crypto Finance AG
Good Morning!
LIBRA is back, and hitting us up with their White Paper 2.0.
Let's rewind to their White Paper 1.0. It was a revolutionary idea to have a new "global commercial retail currency" called LIBRA. The regulatory hurdles were very high, and I pointed out several times in the past that their reserve handling (or asset management concept) was non-existent.
Time of publication chosen in an interesting way
The timing of their revamped white paper is interesting. This week we have seen reports from the FSB (Financial Stability Board) and a first glimpse of the Chinese CBDC testing.
Compared to the first version of the white paper, the main change is that they will now have a multi-stable coin framework instead of one global commercial payment currency (LIBRA). For me, this change strips the project of its USP: a global commercial currency for retail.
Calibra lacks a de facto USP
I have troubles seeing the difference between using my Revolut app versus the LIBRA wallet, called CALIBRA.
Additionally, they are trying to sell the CBDC development as a positive enhancement to their project. They mention that they will make sure that the integration with the CALIBRA wallet will be possible and go smoothly. I am struggling to see how this will go for their retail customers with various bank accounts in different countries (which is needed to be able to hold CBDC of a specific country). Therefore, back to my Revolut app comparison: I've already got what I need, incl. the conversion of my domestic currency into a foreign currency on a competitive spread. LIBRA does not offer that. Any currency conversion will be done by a third-party provider (aka banks).
Another issue, which should not be underestimated, is the fact that LIBRA (or any of their multi-currency stablecoins) will pay no interest. Currently, in a negative interest rate environment, this would be pretty handy. For the launch, it could have been to their advantage. But when interest rates are in positive territory, I see no reason at all to have my digital cash in the CALIBRA wallet. I would rather have my domestic CBDC, which will pay me the interest rate my bank is paying me for my fiat.
Nine other companies are participating with USD 10 million each
Another thing that irritates me is that the white paper mentions that Facebook funding of the LIBRA Association is only 10%. This implies that they have found 9 other members who were willing to chip in USD 10 million. Who are they? And why are they not being made public as was the case in the first draft?
My guess is we will find the names of large global payment and commercial sales providers on the list. Companies that will lose market share if LIBRA is actually launched. Do not forget, you have a massive leverage on the USD 10 million you've put into this project. If it launches and the reserves grow, you can assume that the amount will be in the low single-digit billions. The members of the LIBRA Association will be keeping the yield on the reserve capital.
But I do see some positive things in the development of LIBRA. It is pushing the fragmented development of infrastructure for blockchain-based currencies and assets forward. This will drive the adoption of cryptocurrencies, and, in my humble opinion, especially for bitcoin.
