Following an overhaul of Libra’s original white paper that was met with strong skepticism from United States policymakers, a member of the House Financial Services Committee — Democrat Rep. Sylvia Garcia from Texas — has come out and stated that the updated version of Facebook’s white paper does not contain any substantive changes and that the token should still fall under the purview of the U.S. Securities and Exchange Commission.
In Garcia’s view, the newly proposed version of Libra still derives its value from a basket of digitized currencies that are subject to the regulatory whims of the Libra Association, an independent membership organization that comprises several big-name players including Andreesen Horowitz, Kiva, Lyft, PayU, Uber and Spotify, among others. In regard to the matter, she further added: “I will continue to work to make sure that the SEC regulates any such asset as the security that it is.”
Additionally, Rep. Maxine Waters, a Democrat from California and the chairwoman of the Financial Services Committee, requested Libra’s core team last year to temporarily halt its development efforts so that Congress members could question Facebook CEO Mark Zuckerberg and head of Calibra wallet David Marcus in order to ascertain the legality and overall utility of this digital currency, which Congress believed could potentially threaten the supremacy of the U.S. dollar as well as endanger many other smaller fiat currencies.
Libra’s updated white paper
When Facebook released the original concept for its Libra token back in June 2019, the multinational juggernaut had sought to create a single digital currency that could be designed specifically for users of various social media platforms, thereby facilitating monetary transactions without the use of local financial infrastructure. However, following a number of complaints, the Libra Association has now revamped its white paper to appease financial regulators by establishing various stablecoins that will be tied to different currencies instead of issuing a single digital token.
To discuss Rep. Garcia’s assertions regarding Libra, Cointelegraph reached out to Adrian Pollard, co-founder of BitHolla — a professional trading platform and crypto asset wallet management system. Pollard opined that because Libra is backed by a basket of major fiat currencies, its price can’t be manipulated without the base price of the basket assets being altered. He further pointed out:
“Libra is designed to peg its price to a basket of currencies. Those currencies are USD, EUR, JPY and GBP with most of the basket being USD. Libra is designed like many other currencies that are basket based like the Singapore Dollar — which are legal. I don’t see much validity in Garcia’s concerns. The new revised Libra coin is further mimicking stablecoins such as Tether USD in that Libra will probably reflect the local country currency in which the Libra token is traded in.”
Similarly, providing his thoughts on why Rep. Garcia is raising the aforementioned issue, Marcus Swanepoel, CEO of crypto wallet service operator Luno, told Cointelegraph that Garcia was one of the two proposers for the Managed Stablecoins Are Securities Act of 2019, which aimed to have the Facebook stablecoin classified as a security, so it shouldn’t come as a surprise that she is once again challenging the latest Libra Association White Paper. Swanepoel added:
“The revised Libra Associations’ White Paper — Libra 2.0 — does make substantial changes to the way the stablecoin/s operate and this is an area which should be discussed. There has been no definitive ruling as to whether the SEC views stablecoins as a security or not. The problem is that stablecoins will replace part of a financial system which is trying to classify them.”
On the subject of how Libra performs on the Howey test — a financial commonly employed to determine whether a particular asset is a security — Sidharth Sogani, CEO of crypto and blockchain research firm Crebaco, told Cointelegraph that the asset can still fall under the SEC’s purview because of a few niche aspects that are far too advanced for the traditional global payment system to handle:
“It won’t satisfy the Howey test in my opinion because it's not a security investment. But due to its manipulative nature, there is a scope of deriving profits by taking advantage of the currency rate differences. Here even if it's not passing the Howey test, there are still chances of generating profit from cross border arbitration.”
Additionally, Libra will not make use of the SWIFT protocol to settle its transactions. Instead, the currency is designed in such a way that its native transactions will be settled using a P2P system. Sogani also pointed out: “If I’m holding my money in LBR tokens, LBR is supposed to keep my money safe and secure until I use it. Because of this aspect, the SEC is allowed to interfere keeping in mind the rights of the consumer.”
Expounding his views on how this latest development will help regulators see Libra in a new light, Joe Lallouz, CEO of blockchain infrastructure firm Bison Trails — which is part of the Libra Association — told Cointelegraph that the Associations progress this year is noteworthy:
“This design change enhances the utility of the Libra payment system and means it will be more accessible in countries around the world with greater support for a range of domestic use cases. Bison Trails is excited to see the growing developer community’s open-source contributions to the Libra blockchain. Engagement with a global developer community is an essential ingredient for a protocol’s success.”
Does Libra’s updated white paper placate regulatory concerns?
Even though the latest iteration of Libra coin will be based on digital versions of the dollar, euro and pound sterling — all of which will be circulated via the company’s native blockchain infrastructure — Libra’s ecosystem will still remain fully permissioned and feature little to no decentralization, one of the hallmarks of crypto technology.
This, according to Lex Sokolin, global fintech co-head at blockchain software firm ConsenSys, is what makes Libra so dangerous and yet likely to be adopted. He highlighted that with Libra releasing its second version of the white paper, the currency is no longer permissionless and is instead a basket of central bank digital currencies wrapped into one with regulatory oversight.
However, Pollard believes that a major chunk of the negative sentiment that currently exists in relation to Libra is simply because of its association with Facebook — a company that has had a questionable track record with the privacy and general ethics around its business model.
However, as concerns continue to grow regarding contaminated paper currencies serving as a conduit for COVID-19 exposure and China threatening to take the lead in the digital currency space, Pollard is sure that regulators will have no choice but to give the green light to Libra-like innovations soon enough.
In fact, it is being argued that by making use of Libra and Facebook’s global market pull, the U.S. could maintain its financial dominance vicariously through various American tech companies that are using USD as main collateral to back their native stablecoin offerings.
The future of Libra
As countries all over the world gradually move toward a more digital mode of financial governance amid the ongoing coronavirus pandemic, Sogani believes that Libra has a good chance of going mainstream now: “It’ll take a few more changes here and there, but eventually the U.S. government will allow it. They have to otherwise China will take the lead.”
Swanepoel is of the opinion that while there will almost certainly be legal arguments for and against Libra, as things stand, if such assets are able to deliver genuine benefits to millions of people, then their use will help both the traditional finance sector as well as the crypto industry. Furthermore, he opined: “Stablecoins won’t signal the end of the dollar, euro or pound, so regulators need to work together to get the best answer for all, not just a few.”
However, due to the simple fact that Libra is not a decentralized currency but rather a privately regulated mode of transfer that uses cryptographic techniques for security-related purposes, it still remains to be seen whether the global crypto community, by and large, will welcome this novel asset.