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1/ There is quite a lot to digest around #LibraCoin. Much of the discussion so far has focused on the technology elements and the legal and regulatory and framework. I am more intrigued by the underlying economics.
2/ Because the Libra token will both be non-interest-bearing and broadly “stable” in value, there will be a strong economic disincentive to hold it for any period of time. In this respect, it will be similar to the many other “stable coins” already on the market.
3/ However, the stated mission of the Libra project is quite different from that of most other stable coins. From their whitepaper: “The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people.”
4/ To date at least, the existing stable coins seem to be used primarily as a convenient means to “park” value for people trading in other digital assets they believe have the ability to increase in value and/or pay some kind of return.
5/ For these users, the convenience of a stable digital asset outweighs the economic burden of holding value in a non-appreciating, non-interest-bearing way. However, the number of users who need this function is relatively modest; certainly not in the “billions” of people range.
6/ For the 1.7 billion “unbanked” adults the whitepaper refers to, they will want to do something else with these tokens, namely *buy something*. But here’s the catch: Who will these people be buying something from?
7/ Given given all the clever work that has gone into the design of the entire ecosystem, it is clearly anticipated that Libra will be accepted by a wide range of global merchants. Wonderful.
8/ But now here’s the question: what do we think these merchants are going to do with the Libra tokens they accept? It is one thing to say that there are many individuals around the world who will find Libra a more convenient (or perhaps the only available) means of payment.
9/ It it’s quite another to foresee what merchants who accept these tokens will want to spend them on. A non-interest-bearing, non-appreciating asset is a true economic “hot potato”.
10/ Businesses that carefully manage their working capital (i.e., all of them) will likely be reluctant to hold any material amount of value on their books overnight without a return. Thus, they will either want to spend any Libra they receive as fast as possible (where?) ...
11/ ... or else attempt to lend any Libra they hold to others (who?) to generate a return (yet why would someone pay to borrow Libra if they are effectively freely available in the market).
11/ This is not to say that I am not fascinated by this experiment or that I want anything other than for it to succeed. Nevertheless, it is still very important to ask questions and think through implications (of which there are many well beyond the above).
12/ In terms of “other” implications, there have already been quite a lot identified, but I will mention a few that particularly pique my interest:
13/ Securities laws: will markets regulators around the world be comfortable that the issuance an of an asset (the Libra token) that depends for its value on a managed pool of other financial instruments is not itself a “security” or a “financial instrument”?
13a/ Even though no interest or return is paid, in many markets, that is not a requirement of being a “security”.
13b/ Particularly given that we have just gone through a period of negative interest rates in a number of markets, a stable asset for which fees (negative return) are not charged could be considered a desirable investment.
14/ In addition, as noted by @AndoniOlta, any permissioned and (for now, at least) closed payment system may face antitrust scrutiny (not to mention all the other challenging governance issues faced by permissioned systems).
15/ Anyways - There is of course quite a lot to think about with all of this. Glad to keep this thread 🍜-free. All comments welcome. @lex_node @stephendpalley @propelforward @shulmanjacob @gulovsen @boironattorney @RSSH273 @jnnylng @CaitlinLong_ @AndreaTinianow @AndreasFRHA
16/ Also: @josh_blockchain @ronqman @SusanJoseph1786 @DoWithCare @DonnaRedel @guillermojimnz @NoelleInMadrid @katherineykwu @iamsamkatz @Barbash @lawmaster @PatBerarducci @HaileyLennonBTC @ofnumbers and let’s NEVER forget @prestonjbyrne. 😊😊😊
