Facebook’s Libra

This past Tuesday, Facebook on its long-rumored cryptocurrency project, Libra, unveiling details on how it will work and its push to decentralize it through the Libra Association.

Things I Believe

1) This will be the single biggest boost toward mainstream crypto adoption

Facebook’s ability to roll out a product instantly to its 2.4 billion monthly active users is the type of distribution any company would drool over. Now imagine it creates a digital wallet with amazing UX where users can seamlessly transfer money. Well, here we are. Libra will have massive adoption and at the same time make the mainstream comfortable with digital assets, thereby acting as a gateway to the world of crypto assets.

2) Certain countries will outlaw Libra

Government officials across the world are wondering how this could potentially affect usage of traditional currencies. Already, officials in the US and EU are already concerned this will threaten their sovereign currencies. In fact, the Senate Banking Committee will hold a hearing on July 16 regarding Libra. Any regulatory action against Libra will certainly harm its adoption – however, it will also highlight the benefits of censorship resistant assets such as bitcoin.

3) This will be another massive step forward for the underbanked globally

The underbanked domestically have been benefiting from the Cash App’s accessibility and millions internationally have benefited form services such as M-Pesa, Alipay, Paytm, bKash, and Wing. However, there are still 1.7 billion unbanked worldwide.

4) Facebook will seek to turn Calibra into a full-fledged neobank

Related to the previous point, Facebook will not stop at just providing payment services. Over time it will look to build out products and offerings through its digital wallet, Calibra, that can generate serious revenue at scale through savings, lending, and investment products. Obviously it will have to deal with regulatory hurdles to get there but they don’t seem insurmountable.

Open Questions

1) How will incumbent payment companies react?

Libra is a clear and present danger for payment companies that are enjoying the status quo. If Libra takes off, soon enough the ground will shake for these incumbents and their profitability will look much different than today. Interestingly, five payment companies are part of the inaugural members of of the Libra Association, including Mastercard, Visa, PayU, PayPal, and Stripe. Surely, they have a lot to gain by getting a close look under the hood of Libra, but what happens when cryptonetwork payment rails start to eat into their pie?

2) How will banks react?

As opposed to the payment companies mentioned above, there are zero banks currently signed up as members of the Libra Association. Reportedly, Facebook courted Wall Street to join the effort. Maybe the big banks are busy at work on their own competing next-gen payment platforms?

3) How will this impact crypto regulation?

The SEC has been in the crypto headlines recently due to its lawsuit against Kik (and surely there are more to come). As Libra enters the modern zeitgeist, how will the SEC treat inevitable competitors whose coins behave similarly to Libra but aren’t necessarily backed by fiat? Will they have any grounds to go after Libra itself? How will it react to potential future investment products offered on top of this infrastructure? Tons of questions here.

4) Will consumers fully trust Libra?

As potential competitors look at this announcement, the clear potential crack to take advantage of is that Facebook hasn’t necessarily maintained the most trustworthy brand. Even with their announcement that Libra will be operated independently and that it won’t have direct access to users’ financial transaction info, many will choose to steer clear. Could this be enough of an opening for contenders starting from basically scratch (especially compared to Facebook’s massive reach)?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.