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To Comply or Not To Comply - Libra as a Stablecoin

To greatly impact the society means to significantly affect people’s day-to-day lives. In this technological era, from small errands up to huge businesses, the pace does not get any slower. Efficiency as well as accessibility have become everyone’s major concerns. The rapid penetration to financial markets fill the expectation gap through an improved consumer experience. As such, various business models and new customer needs arise. With a vision to provide consumers with ease of use, Facebook’s stable coin, Libra, aims to digitize the sector of finance by fostering payment unification at a global scale. On the other hand, trust isn’t facilitated with convenience and high transaction speed alone, consumer’s security and protection is of equal importance. Regulatory compliance has played an integral role towards innovative actions in the digital asset space. However, should Libra comply?

As per Libra’s published white paper, authorized re-sellers (by the association) will act as entities to transact fiat and Libra in and out of the reserve. So to speak, there won’t be a reserve direct interface by the users. The integrated founding members, trusted leaders and prominent payment networks will exercise liquidity that allows exchange of Libra into fiat currency and vice versa; stores and sends it too. More than just digitizing money, solutions offered hold potential benefits that will boost the finance industry from driving down transaction costs, speeding transaction pace, friction-less operation and transparent payment system to a more stable way to secure funding.

As a multi-currency backed stable coin that doesn’t use Bitcoin’s proof of work model, a fixed value in a national fiat currency doesn’t apply nor does huge fluctuation of prices. Other than its low-volatility assets, a digital wallet will be maintained on top of the Libra Network. Pretty much, sounds more like a redemption into an ETF (Exchange-Traded Fund). In this sense, Libra will be an actively managed ETF that invests in a basket of currencies based on a set of investment objectives. If Libra’s structure falls under the category of ETF, regulators’ approval would be imperative to launch the project and SEC (Securities and Exchange Commission) would assert jurisdiction over Libra tokens’ market.

With Libra’s partnership to veteran payment networks like Paypal, Visa, Mastercard and eBay, crypto’s introduction to a broader market, and a wider range of financial services, the likelihood is that Facebook et al. already anticipated the regulatory angle and dance through the securities registration minefield. As a rule of thumb, an investment company may stay unregistered so long as it performs underneath a specific threshold of owning securities; if Libra aggressively limits its exposure to bonds, other assets and mostly holds currencies, it could at least avoid the Investment Company Act of 1940 (primarily focused on a greater transparency for investors and regulatory framework for retail investment products). With that being stated though, it would technically, limit the income earned for the foundation.

If Libra is, at the core, an ETF, it will relatively be an easy cleanup to file it, formally. By definition, Libra is intended to be exchanged 1:1. The entirety of it is that the user would be capable of utilizing Libra the same way cash is used. Thus, a wallet with 20 Libra is very much similar to owning a wallet with a $20 Paypal balance (or if the user transacts through Alipay). With its proposition of connecting the crypto world with the legacy financial system that may address issues of expensive and inefficient cross border conventional payment system, Libra envisions to create seamless transactions registered into the blockchain. For instance, there’s no way that a consumer can hand Amazon a share of the Vanguard S&P 500 ETF in exchange for goods like books or groceries. Libra, foresees a world where consumers could directly do just that. It opens up a regulatory discussion about a radically improved way of moving a security from pocket 1 to pocket 2.

Discourse abound of all the various ways the public tries to crack the nuts- to become a new dollar in the corporations’ and consumers’ lives. SDRs (Special Drawing Rights) is almost always caught in every discussion. SDRs are issued by the International Monetary Fund, like Libra which is an active managed basket of securities. Nevertheless, Libra is not its own currency in the way Bitcoin and its countless variants are.

Bitcoin appears as a non-fiat currency whose primary value is disconnected from central banking and other governmental oversight. The inherent unpredictable price swings will be a huge barrier to entry to Bitcoin gaining traction as a chief means of exchange.

Although the rights of unit holders and mechanisms for dispute resolution remains vague, the need for digital transaction solution forced the regulators to make room for the future, which sounds promising. It may seem like the idea of Libra is far-fetched but perhaps it’s just a matter of timing, instead of just feasibility. Essentially, all of the hurdles are either adoption related or regulatory in nature. Whatever regulatory solution Libra consortium comes up with, it’s fascinating that it could have a far-reaching implications well beyond digital currencies.



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