Facebook’s Libra project was arguably one of the most controversial ones in 2019. However, due to the sheer scale of issues that we have encountered in 2020, most of us have forgotten that it even exists.
Many crypto enthusiasts were actually looking forward to Libra’s final debut on the market, but unfortunately, a plethora of issues with local regulations force the development team to take a breather and make some much-needed adjustments.
So what has changed about Facebook’s pet project? Is it the same thing that millions of people have been anticipating or is it something completely different? Let’s find that out.
Surrounding controversies
One of the biggest issues that Libra had before it even went live was the constant surrounding controversy with regulators. Almost every single country, besides the United Kingdom, was extremely skeptical about the new project. Every central bank believed that Facebook’s cryptocurrency would interfere with their local fiscal and monetary policies if it reached a significant scale.
Considering the 2.5 billion active users that Facebook has, it’s not as hard to believe that it could indeed be the case.
Therefore, instead of giving Libra recommendations on how to adjust to local rules, they outright outlawed any subsidiary or foothold to be made by Facebook in the country.
This is directly in accordance to how the regulators watch over the financial situation of the country through Forex metrics. This could include things such as the maximum size of the foreign reserve, or the act of trading these currencies legally within the jurisdiction. Bans are usually imposed when the currency is not performing very well, as the central bank tries to limit supply and let demand outpace it.
This is like the economics 101 part of every Forex learning academy. Whenever traders are just now starting to learn Forex from scratch, the very first lessons taught to them are regarding the policies that the government could potentially use that will affect their trading pattern.
This is the exact same for cryptocurrencies such as Libra that are still relatively new and therefore are guaranteed to be extremely volatile no matter the demand/supply division.
Because of this, governments were simply too afraid to let Facebook do as it pleases because there was actual concern that Facebook’s Libra would be much more useful than their local fiat currencies, thus severely affecting the markets.
How was the issue addressed?
Facebook did not come up with anything too groundbreaking, but it was still a clever solution nonetheless. What they did was split the Libracoin into two different categories. These would be the single and multi-currency stablecoins.
For example, a single-currency stablecoin could be bought or sold only through one specific currency, thus making it directly tied to it and part of the currency reserve that the country has. This eliminates any potential interference with the exchange rate of the local fiat currency.
The multi-currency stablecoin is similar to the rest of the coins such as Tether USD and etc. This coin would be possible to buy with any fiat currency, but only in jurisdictions that allowed it. For example, when we mentioned the UK as a potential friendly face in Libra’s campaign, it’s quite like for them to be the country that allows this multi-currency stablecoin.
Registering as a formal payment method
Libra also took care of its classification within the laws of different countries. Instead of registering as a cryptocurrency company, it will register as a payment method, therefore having a direct connection with the country’s financial regulator and being legally obliged to provide requested data.
This was also a major concern for regulators, as Libra would provide Facebook not only access to huge data servers of FB users, but also huge data servers of Libra users that is in direct correlation with their financial situation. This would prove to be an immense advantage in a competitive market as well as general analytical context of a customer base.
But now that Libra is going to register as a payment method, regulators will have a much larger array of laws to keep the company in check.
Connection to conventional finances
Another feature that Libra was promising, in the beginning, was a direct connection to conventional financial services. These would be local commercial banks, payment methods, and credit card providers such as Visa and Mastercard.
It is unclear whether Libra will continue on the same path, but considering the Visa recently left the association, it is unlikely for a very close partnership to develop in the near future. This is especially due to Facebook’s declining user-base and influence over the world.
That was one of the reasons why Libra was so rushed, or almost anything else that Facebook does seems to be so “populistic”.
Whether the Libra diversification works or not remains to be seen, but as of right now, it seems like just another crypto project rather than the next big thing.
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