Libra’s Second Wind

After a number of heavyweight members jumped Libra’s embattled ship last October, following a series of regulatory blows for the digital currency project which saw European countries’ regulators say it could “unlawfully privatise money”, Facebook’s crypto project took a step back from the limelight.

Libra remained silent during the months that followed. Principal at venture capital firm Northzone, Wendy Xiao Schadeck, tells FinTech Futures this intentional silence is likely down to the social media giant trying to navigate the regulatory roadblocks it encountered last year.

Some think the slow progress of blockchain projects like Libra is not just because of regulatory hurdles

She recalls Basis Coin, a stablecoin start-up which had to shut down in December 2018. Despite securing $133 million in funding, the start-up got too ahead of its product roadmap and eventually blamed “regulatory constraints” for its closure.

Determined to avoid Basis Coin’s fate, Libra revamped itself in April with a considerably scaled-back proposal which it hopes will get regulators on side. Instead of a stablecoin backed by a mixture of currencies and government debt, Libra’s new version will offer stablecoins pegged to national currencies, with governments able to “directly integrate” any future central bank digital currencies (CBDCs) into Libra’s network.

Since then, Libra has welcomed two big new members: online payments processer Checkout.com, and Temasek, Singapore’s state-owned investment firm. The association has also landed the CEO of its regulation-mired dreams – HSBC’s chief legal officer, Stuart Levey. He was previously the Under Secretary of the Treasury for Terrorism and Financial Intelligence for George W. Bush and Barack Obama.

But some think the slow progress of blockchain projects like Libra is not just because of regulatory hurdles. Richard Olsen, founder of Swiss-based fintech Lykke, tells FinTech Futures there is “a lack of understanding” around what firms can do with existing regulations. “Bitcoin has distracted people from the rest of the industry,” he says, highlighting that many firms still have not tokenised their financial assets and claims, despite the fact current regulation allows it. “What has been incredibly painful in the last few years is that blockchain has not been embraced [to solve] the problems now at stake,” says Olsen.

The new Libra could cause some disruption – but this will likely only go so deep

Whilst huge international entities such as Amazon and IBM have blockchain departments, and most big banks are using it, or at least looking at how to integrate it, the world is still very early on in what many experts hope will become a journey to large-scale public adoption of blockchain.

To bridge the knowledge gap around emerging technology, Facebook has been working to create a new political advocacy group to tackle US lawmakers and regulators trying to hamper the tech industry’s plans. Libra wants to launch its stablecoin before the end of this year. Whilst Bittrex Global CEO, Tom Albright, tells FinTech Futures he considers blockchain to be a “foundational technology” which is predominantly used “behind the scenes”, Libra intends to be consumer facing. So, what will that look like?

If we were asking this question regarding Libra’s old model, the answer might be more interesting. The new stablecoins Libra is now proposing will likely see Facebook compete in a similar way to existing digital wallets such as PayPal’s Venmo, through which users can store a balance and spend it at any time.

Social payment apps like Venmo, which grew 2.6 times more than its parent company did last year, cater to the social lifestyle habits of Generation Zs, allowing them to share and split payments for presents, holidays, dinners etc. Libra will act much the same. Facebook’s digital wallet – newly-named Novi –  will be integrated into its messaging apps, WhatsApp and Messenger, allowing users to send money peer-to-peer (P2P) as easily as they send a text.

The key difference is that Libra will not require users to have a bank account, hence having the ability to tap millions of unbanked consumers around the world. Skipping the bank altogether, Libra could cause some disruption – but this will likely only go so deep, with banks still serving a purpose when it comes to issues of employment, housing, tax and immigration.

Libra still has a lot of work to do if it wants to launch this year. There are still regulatory gaps in Libra’s proposal, including around how cross-border payments will work. And though its new member additions have helped reinvigorate the momentum, it will take more high-profile members if it wants to establish itself as an enticing investment proposition.