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Libra was first announced just over two years ago. It was perhaps one of the most significant projects the crypto industry has seen.
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Regulatory reminders
Facebook announced a big vision for a stablecoin backed by a handful of currencies just over two years ago today. He killed that vision less than a year later, before renaming and completely restructuring the project just six months ago (the new version could launch later this year). But even today, we can feel Libra’s impact on global crypto regulation.
Why is this important
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Libra was an exciting story to cover. Even though its creators seem to have doubts about how it was revealed to the world, the long-term reaction from regulators in the form of reports and bills shows just how much attention it has garnered. The current regulatory approach to the cryptocurrency as a whole stems from this announcement in mid-2019.
Break it
The other day my colleague Zack Seward pointed out that it had been exactly two years since Facebook announced the blockchain project he had spent a year working on. The libra stablecoin, as it was originally envisioned on June 18, 2019, was quite bold: a digital token backed by a basket of fiat currencies, overseen by a governing association of 100 different companies responsible for both project development and its governance.
This project was never launched. Apparently every regulator on the planet decided it was a bad idea, Facebook CEO Mark Zuckerberg spoke to US Congress, Facebook blockchain chief David Marcus addressed Congress ( twice), people around the world have called for an immediate stop. Eventually the project was rebranded and now aims to launch as a single fiat coin with the help of a regulated US bank. (You can find a full timeline here.)
The story continues
I think my take on Libra has aged quite well. Libra, as proposed, is dead. Diem, its successor, is a radically different project – backed by a single currency (the US dollar) and issued in partnership with a bank. Despite this, I still think this is one of the most important 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 long before Facebook even stepped into the blockchain, but the regulatory response took on a much more urgent tone after Libra’s announcement.
Related: Long & Short Crypto: Trade, Dollarization, or Speculation?
Over the next two years, the Bank for International Settlements (BIS), a kind of central bank for central banks, issued numerous documents on stablecoins, just like current central banks. The President’s Financial Markets Task Force issued an advisory last year calling for new stablecoin regulations and addressing issues of retail usage and financial stability.
It may have also reignited much of the conversation around a central bank digital currency (the people behind Diem say stablecoin will be built to become obsolete as soon as a digital dollar is issued). These talks, accelerated by the COVID-19 pandemic, have led to a world where China is on the verge of bringing its digital yuan to full life and the United States is set to release a report on what might look like its own CBDC.
In fairness, it was mostly Facebook’s involvement that caught everyone’s attention. If (no offense to you) Coinbase or Kraken had proposed this project, I imagine the regulators would have shrugged their shoulders.
At the time, Facebook was only a few years away from the Cambridge Analytica scandal. It’s probably fair to say that few people really trust the company, especially when it comes to protecting user data. With Libra, the company was trying to combine personally identifiable information with real money.
Plus, what if Facebook succeeds in creating a closed loop, where people only transact within the Libra ecosystem? Or used Libra to evade money laundering laws?
These are some of the biggest questions (I think) that regulators and policymakers have asked around this project. And this despite Facebook’s efforts to publicly part ways with the Libra project, including through the board, and saying that only its subsidiary Calibra (now Novi) would be directly involved.
But now the seed has been planted and policymakers will be watching for other projects that may pose similar risks to the existing financial system. We see this in reports on “so-called stablecoins” and “the impact of global stablecoins”, as well as in bills such as the STABLE Act.
Looking at the models of support, governance and tokens, diem is different from what the scale was. Whatever ultimately becomes, it won’t be what regulators react to – it will be the ghost of what Libra might have been.
Biden’s Rule Changing the Guard
By popular demand, this graphic will be left untouched. That being said, there has still not been much news regarding the permanent chiefs of the CFTC or OCC. US President Joe Biden was abroad for the G7 meeting, so maybe that was planned.
Elsewhere: Outside of CoinDesk:
(Senator Kirsten Gillibrand) Senator Kirsten Gillibrand (DN.Y.) proposed to create a data protection agency that would be responsible for protecting user data and privacy, and ensuring that “data practices are fair and transparent ”. The agency could assess the fines and take enforcement action.
(Inside Edition) After last week’s horrific story about mouse plague in Australia, I feel compelled to bring you an equally gruesome story about spider plague in Australia. No fancy visuals this time around, just, you know, some majestic but ominous images. (h / t Christine Kim).
If you have any ideas or questions on what I should discuss next week or any other comments you would like to share, please feel free to email me at [email protected] or find me on Twitter @nikhileshde.
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See you next week !
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