Jay Zhou, Co-founder, Loopring Protocol
Facebook and a group of financial entities (including but not limited to Paypal and Uber)
have proposed, but not yet enacted, Libra, an open source, but asset backed, cryptocurrency that is to be managed by the Libra Association and the Libra Reserve, all of which are to be elaborated on shortly.
Libra will be governed by a group of founding members via a non-profit governance
entity called the Libra Association. This organization will be based in Geneva, Switzerland, and thus subject to Swiss regulatory law. One hundred membership seats were open to a select list of companies and non-profits for $10 million USD per seat, of which Calibra, a Facebook subsidiary, is getting only one voting seat.
Libra will be, according to Facebook speaker Davis Marcus, unlike any other previous
cryptocurrencies in that it will be both asset backed, via actual low risk bonds in various fiat
currencies held by Libra Reserve, but also ‘permissioned.’ Marcus claims it will be
‘permissioned’ during its early stages in that only the founding members of the Libra Association will be able run nodes that can validate transactions to the Libra blockchain. This is both to follow through with regulatory requirements both in Geneva and elsewhere in the world, but also likely to reward the founding members initial investments, as only they can mine. or mint new Libra during this phase.
Recently, on Tuesday (2019-07-16), Mr. Marcus met with the US Senate’s regulatory
body for banking, the Committee for Banking, Housing, and Urban Affairs to discuss the
regulatory future of Libra et. al, and various US regulatory agencies and how they should work together to serve the unbanked and also lower transaction fees for person to person finances.
Marcus also emphasized that using ‘permissioned,’ but public blockchains will ensure that Libra nodes will be licensed and easily comply with all anti-money laundering rules and regulations in any and all jurisdiction. Overall, the Senate hearing showcased the Senate’s deep concerns and their resonance with similar regulatory bodies in the UK, especially regarding Facebook’s past hearings regarding the violation of privacy laws with selling user info to Cambridge Analytica.
This brings a very serious question, in that Facebook is still the ringmaster, and thus at the
forefront, of where Libra will go. If the general public and governments do not trust Facebook, nor might they deserve this trust, then this poisons any faith people might have in Libra from the coins infancy.
To the point, while Calibra’s, and thus Facebook’s, claims are both ambitious and in some
ways ground breaking, the gears of change will be greatly halted by the hundreds of regulatory bodies they seek to appease. While basing the controlling organization in Switzerland, a generally more Laissez-faire regulations, is prudent, this will not shield Libra’s validator nodes from countless levels of regulations they have to deal with. To be blunt, none of the existing regulator legal framework for preventing money laundering and other illegal financial entities work at all in a global setting. For example, say a customer buys product B in their home province, in country ‘C’, using a Libra node in said area, and pays in the Libra to a wallet in country ‘Z’. However, product B is banned in country Z, so who has jurisdiction, and should the Libra Association reverse the transaction for the customer who legally purchased product B, due to rules in ‘Z’? Furthermore, how does that interact with consumer protection laws in the country, ‘C’, where said consumer tried to purchase a product. This hypothetical is not unique to Libra, and is a rampant regulatory nightmare for many online shoppers, but perhaps Calibra (Facebook et. al) can unite the mess that is the current legal framework for finances.
Unfortunately it seems likely that there will be a halting, push back against such change that may kill Libra before it ever gets started.
Jay Zhou, Co-founder, Loopring and board of Looping Foundation.
He has extensive skills across online payment & financial operation with a particular focus on risk management and innovative solution. Prior to Jay’s work in the cross-border payment at PayPal, he worked in a spectrum of different industry sectors including; Risk&Compliance at Ernst&Young and a member at Global Shapers Community. Mentor for class CS359B at Stanford University. Jay has been supported and published articles on blockchain tech at Chinese Smart Contract (Ethereum) community and Zhongan blockchain lab.