The payment network Libra, initiated by Facebook among others, presented itself to the world public for the first time on 18 June. According to a media release issued by BTC-ECHO, the social media giant is participating in the network with a specially founded subsidiary called "Calibra".
Facebook joins the Libra Association through a newly formed subsidiary, Calibra, which will build financial services for Libra. Calibra's first product will be a digital wallet for Libra that will be available in Messenger, WhatsApp and as a standalone app.
In addition, the subsidiary Calibra is to ensure that a clean "separation of social and financial data" is possible.
In addition to Facebook, numerous other "big fish" from various industries are cavorting in the Libra network.
- Payments: MasterCard, PayPal, PayU, Stripe and Visa
- Technology and marketplaces: Booking Participations, eBay, Facebook/Calibra, Farfetch, Lyft, MercadoPago, Spotify AB and Uber Technologies, Inc.
- Telecommunications: Iliad and the Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture capital: Andreessen Horowitz, Ribbit Capital, Thrive Capital, Union Square Ventures
- Non-profit and multilateral organizations and academic institutions: Creaive Destruction Lab, Kiva, Mercy Corps, Women's World Banking
The introduction to the White Paper states that the number of participants should increase to 100 by 2020. "Participants" means here: Operators of network nodes.
Network nodes at Libra not only provide the technological infrastructure; as so-called "validator nodes" they are also responsible for the confirmation of transactions in the Libra network. They also determine who has access to the network. Each company is said to have paid USD 10 million for permission to operate a node. Apparently, a separate token was used for this. Libra's technical white paper mentions a "Libra Investment Token" with which the founding members bought themselves into Libra.
Libra as stable coin for Facebook & Co.
The Libra "blockchain" of course does not come without its own crypto currency. It bears the name "Libra" and is designed as a so-called "stable coin". Stable coins pursue the goal of maintaining a stable (counter) value. There are different approaches to ensure this value stability (more about this in our detailed tutorial). The most understandable approach is to cover a stable coin with reserves in fiat currencies such as the US dollar or the euro.
The reputation of a stable coin, however, depends on the transparency with which its cover is provided. For example, Tether, the company behind USDT, the largest stable coin in terms of market capitalisation, has been repeatedly criticised for failing to provide watertight proof of its reserves. After Tether had long claimed to have a fiat US dollar for every USDT in its account, the company has since rowed back. The USDT tokens in circulation are 75 percent covered by Fiat deposits; the rest is covered by other deposits, including crypto deposits.
While industry leader USDT is expected to always reflect the exchange rate of one US dollar, Libra wants to position itself more broadly. The price of the Libra Coin will be based on an entire basket of currencies - including the US dollar, the British pound sterling and the euro. This should make Libra resistant to exchange rate fluctuations of a single currency.
To promote widespread acceptance [of the Libra Coin], Libra is designed as a currency where every user knows that the value of a Libra today will be close to that of tomorrow. Just as consumers in Europe know that the number of euros they need to buy coffee today is equal to the number of euros they will need to buy coffee tomorrow, Libra owners can be confident that the value of their coins will be relatively stable today.
Libra: Covered by government bonds
Similar to Tether, Libra also has a so-called "reserve" in which the reserves to cover the Libra Coin are stored. Unlike Tether, however, the Libra Association makes no secret of the fact that its crypto currency is only partially covered by Fiat deposits.
By fully covering each coin with stable and liquid assets and working with a competitive group of exchanges and other liquidity providers, users can be confident that they can sell each libra at any time at the same - or close to - the value of the reserve. This gives [Libra] an intrinsic value on the first day and protects it from the speculative fluctuations of other crypto currencies.
According to the White Paper, the non-liquid, less volatile assets are "a collection of assets with low volatility, including bank deposits and government bonds in currencies of stable and reputable central banks". Liquidity, on the other hand, will be provided by short-dated government bonds traded in highly liquid markets.
Libra investors calculate in the long term
The reserve is fed from two sources. On the one hand from the funds of the financing round, in which the node operators exchanged so-called "Libra Investment Token" for Fiat money. The second source of income is the Libra users. They receive the "crypto currency" only for Fiat money.
The interest income from the reserve, which is supposed to result from investments in low-risk investments, benefits the founding members of the Libra Association. But only in the last place, if you believe the white paper:
The income from this interest will initially be used to support the running costs of the association - to finance investments in the growth and development of the ecosystem, grants to charitable and multilateral organisations, research, etc. Once this is covered, part of the remaining returns will be distributed to early investors of the Libra Investment Token [...].
Due to the relatively low price fluctuations of the reserve assets, the return for early investors is largely dependent on the growth of the network and thus of the reserve.
Focus on emerging and developing countries
According to the narrative of Libra, the new payment network is aimed primarily at emerging and developing countries whose populations have limited access to financial services. It's no coincidence that this is reminiscent of the credo Banking the Unbanked, that numerous crypto projects have taken up the cause.
Financial inclusion is the leitmotif of marketing for Libra, as can easily be seen from Libra's introductory video.
And so the partners involved - from MasterCard to PayPal - are also digging into the notch of financial and economic emancipation. Jorn Lambert of MasterCard is quoted here as a representative from the long list of marketing statements by the founding members:
Tomorrow's innovation can already be an idea today. We are committed to ensuring that the Internet of
all comes with the inclusion of all. By creating partnerships to explore, shape and test new approaches, we can cultivate ideas to realise inclusion earlier than some may think.
Financial inclusion, banking the unbanked and the digital transmission of values - one could almost believe that Project Libra invented crypto currencies. But with the difference that Libra does not use blockchain technology in the narrower sense, the network with its gatekeeper network nodes is anything but inclusive, and the idea that large corporations are responsible for the operation of Libra is practically diametrically opposed to the Bitcoin ideal of complete decentralisation of payment traffic.
Libra still exists as a prototype. The reserve also has yet to be built up and distributed geographically. This should happen in the following months. At the same time, the developers are working on various programming interfaces for the Libra programming language "Move".