The Facebook Libra project, which was introduced in May of 2019, is now facing a worldwide regulatory pushback. Yet, amidst criticisms from regulators, government leaders, central banks and congressional leaders, Mark Zuckerberg continues to support the development of the social media giant’s foray into crypto. With all this going on, several original partners that the proposed Facebook coin was hoping to bring on board, including Mastercard, Visa, and Paypal, are now having serious second thoughts.
What is Facebook Libra?
The Libra project is an effort to bring cryptocurrency to the masses. Especially the 2.3+ billion monthly active Facebook users (plus those who use WhatsApp). This cryptocurrency could be available in the app for shopping and eventually peer to peer crypto transactions and exchanges, with onboard/offboard ramps to fiat and other currencies available worldwide. The coin itself will be a stablecoin that is backed by a basket of currencies such as the Yen, Yuan, USD, and EURO.
The Libra Association, a non-profit organization out of Switzerland, will be in charge of building and operating the cryptocurrency. This Association, by Facebook’s intent, will have up to 100 original partners who each invest $10 million in Libra coins. How exactly they will benefit other than having that many coins staked is not yet crystal clear. The Libra announcement mentioned having 27 partners ready to sign on, including Visa, Mastercard, Paypal, Spotify, and Uber.
According to the white paper, Facebook intends on eventually moving to a decentralized currency, similarly, they say, to bitcoin. Skeptics are having a hard time wrapping their heads around a decentralized cryptocurrency conceived and run (at first) by the world’s fifth-biggest company by market capitalization.
Libra’s Mission Statement is this:
“A simple global currency and financial infrastructure that empowers billions of people.”
Facebook’s intentions may or may not be to empower those without access to modern financial services. Either way, they seem poised to take this project all the way through. They also have a deep legal team and plenty of money to work with; their Q2 2019 revenue topped $16.89 billion.
When Facebook first made the official announcement about Libra, there was an immediate negative response from almost every angle:
- US congressional leaders just days after the announcement sent a letter to Facebook calling for an immediate stop to development. At least until regulators and leaders had a chance to build what they felt was necessary legislation to control the currency. The suggested moratorium came from the House Financial Services Committee who, led by Rep. Maxine Waters, cited Facebook’s long history of data and privacy problems, as well as its potential to attract cryptocurrency hackers.
- The cryptocurrency community’s reaction was not that much better. Many enthusiasts did feel that the Facebook Libra announcement was good in the long term for cryptocurrency. But most balked at the idea of Facebook running a decentralized crypto, which is an oxymoron in itself.
- Regulators from the US and abroad quickly expressed their concerns regarding the Facebook Libra global currency. Perhaps the loudest among them came from France, who announced a ban on the Libra project a few short months later. Not only did they make clear their intention to block progress in their nation, but they also encouraged the rest of Europe to follow their lead.
“I want to be absolutely clear: in these conditions, we cannot authorize the development of Libra on European soil.”French Finance Minister, Bruno Le Maire
The Facebook Libra mission statement did not go down as smoothly as they’d hoped. The main reason for this was due to the multiple data privacy lawsuits in the past. Now we will trust them with a global currency?
Two US Senators went as far as to send a letter to potential Libra partners, with soft threats used to persuade them to bow out of the project.
Facebook Libra partners go AWOL?
Four months later, Facebook has settled more data suits and has drawn more litigation including privacy charges and antitrust litigation. Those original “partners,” who had never really signed anything officially, are starting to back out.
It started last week with the WSJ announcement that Visa, Stripe, eBay and Mastercard were bowing out. In the same week came the news about Paypal, which carried significant importance because David Marcus, Co-Creator of Libra, was formerly president of Paypal. Since, then ebay, Stripe
Since Libra is all about enabling a worldwide payment system, having the big three of payment companies all cast doubts was certainly a hit to the Libra project. It could be that they are simply waiting for clearer regulations. Or, maybe they’d simply rather Facebook take on all the scrutiny in what is essentially the world’s first baby steps towards a digital currency reality.
Just days after PayPal’s exit All in all, they’re backing out was likely a combination of the reasons we curated below:
Top 3 Reasons for dropping out of Libra
- Regulators are hot and heavy for the Facebook Libra coin and anything resembling competition to the USD as a world reserve currency. A currency that was in the hands of so many people, and run by an organization that is not a government or central bank is very frightening to many people. To others, cryptos like bitcoin offer solutions to manipulated currencies and many world economic problems. But it will be a long time before the masses are in tune with this. It may take a Facebook cryptocurrency to drive it all home.
- Antitrust suits are looking like they will be a big problem for Facebook. So far, the Attorney’s General for seven US states have joined the antitrust suit against Facebook. All fifty states are on board with an antitrust suit against Google. These big data companies are in deep with legal troubles, both having multiple investigations going on as we speak.
- The push back against cryptocurrency itself is continuing. The SEC has been busy settling ICO lawsuits against crypto projects who didn’t register as a security. Exchanges are still getting hacked, causing politicians to have more ammunition in shooting down the cryptocurrency industry.
Despite having the payments and commerce giants bow out, Facebook, just days later, solidified their intentions. They announced the official 21-member council, who all signed the Libra Association Charter in Switzerland on October 14, 2019. The members include Uber, Lyft and Spotify.
There are a lot of reasons to have doubts about today’s highly volatile economy. But the truth of the matter is this: The Facebook Libra project is set to launch in the next year or so. If they can accomplish this, and they are still full steam ahead, suddenly the number of crypto users could mushroom to millions overnight.
In the meantime, traders will be traders and many are speculating on Facebook Libra’s future. In fact, one company, CoinFLEX, recently launched a futures product based on whether or not Libra launches in 2020.
For further reading: