Libra was first announced just over two years ago. It may have been one of the most significant projects the crypto industry has seen.
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Facebook announced a grand vision for a stablecoin backed by a handful of currencies just over two years ago today. It killed that vision less than a year later, before rebranding and restructuring the project entirely just six months ago (the new version may launch later this year). But even today we can feel Libra’s impact on global crypto regulation.
Why it matters
Libra was an exciting story to cover. Even though its creators seem to have some second thoughts about how exactly it was revealed to the world, the long-term reaction from regulators in the form of reports and proposed legislation shows how much attention it garnered. The current regulatory approach toward cryptocurrency as a whole stems from that one announcement in mid-2019.
Breaking it down
The other day my colleague Zack Seward pointed out that it has been exactly two years since Facebook announced the blockchain project on which it had spent a year working. The libra stablecoin, as originally envisioned on June 18, 2019, was pretty bold: A digital token backed by a basket of fiat currencies, overseen by a governing association of 100 different companies responsible for both the project’s development as well as its governance.
This project never launched. Seemingly every regulator on the face of the Earth decided this was a bad idea, Facebook CEO Mark Zuckerberg spoke to the U.S. Congress, Facebook blockchain lead David Marcus spoke to Congress (twice), folks around the world called for an immediate halt. Eventually the project rebranded and now aims to launch as a single-fiat stablecoin with assistance from a regulated U.S. bank. (You can find a full timeline here.)
I think my take on Libra aged fairly well. Libra, as proposed, is dead. Diem, its successor, is a radically different project – backed by a single currency (the U.S. dollar) and issued in partnership with a bank. Despite that, I still think this is one of the most significant projects the crypto industry has ever seen, less for what it was and more for what it left behind. Regulators were aware of and discussing cryptocurrencies well before Facebook even poked its nose into blockchain, but the regulatory response took on a decidedly more urgent tone after Libra was announced.
In the two years since, the Bank for International Settlements (BIS), a sort of central bank for central banks, has published numerous documents about stablecoins, as have actual central banks. The U.S. President’s Working Group on Financial Markets published an advisory last year calling for further stablecoin regulations and addressing retail use and financial stability concerns.
It also may have restarted a lot of the conversation around a central bank digital currency (the folks behind Diem say the stablecoin will be built to become obsolete as soon as a digital dollar is issued). Those discussions, accelerated by the COVID-19 pandemic, have led to a world where China is on the verge of pushing its digital yuan fully live and the U.S. is about to publish a report on what its own CBDC could look like.
In fairness, it was mostly Facebook’s involvement that got everyone’s attention. If (no offense) Coinbase or Kraken had proposed this project, I imagine regulators would have shrugged.
Facebook at the time was just a few years out from the Cambridge Analytica scandal. It’s probably fair to say few people really trust the company, particularly when it comes to protecting user data. With libra the company was trying to combine personally identifiable information with actual money.
Moreover, what if Facebook successfully created a closed loop, where people just transact within the libra ecosystem? Or used libra to evade money laundering laws?
These were some of the (I think) biggest questions regulators and policymakers had around this project. And this is despite Facebook’s efforts to publicly divorce itself from the Libra project, including through the governing council, and saying that only its Calibra (now Novi) subsidiary would be directly involved.
But now the seed has been planted and policymakers will be watching for other projects that might pose similar risks to the existing financial system. We’re seeing that in reports on “so-called stablecoins” and “the impact of global stablecoins,” as well as proposed legislation like the STABLE Act.
Looking at the backing, governance and token models, diem is different from what libra was. Whatever diem ultimately becomes, it won’t be what regulators respond to – it’ll be the ghost of what libra could have been.
Changing of the guard
By popular demand, this chart will remain intact. That being said, there still hasn’t been much news regarding permanent heads for the CFTC or OCC. U.S. President Joe Biden was overseas for the G7 meeting, though, so perhaps that was expected.
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