Thread by @ccatalini

Thanks @tylercowen for the post! Great questions, here are replies to some of them. All the issues you raise, and especially those we have not addressed directly, will be formalized by the Libra Association @Libra_ after gathering feedback from everyone in the ecosystem. 1/15

The documents we shared today are meant to be the start of a conversation with the open source and economic communities, as well as regulators.

(1) Libra will be backed by bank deposits and short-term government securities in currencies from a small number of stable... 2/15

...and reputable central banks.

(1b) Currency is fully backed, and custodians will be able to prove that they are not introducing fractionalization on top of the settlement layer. Even so, you raise an important issue @Libra_ will have to address. 3/15

(2) Two sources of funds: i) investor funds will be used to allow custodians, merchants, etc., to provide incentives for adoption, and will be converted to Libra before being distributed; 4/15

ii) As the Libra economy expands and users convert more fiat to Libra, their funds are used to purchase more units of the reserve basket through authorized dealers. Intermediaries may charge a fee for on/off ramps. 5/15

(4) The reserve will not be actively managed. Rebalancing of the basket may occur in response to major economic events. Such a change would require exceptional circumstances and a supermajority vote by the association’s council. 6/15

(4b) Great question and something the association will have to work closely with regulators (as in the current system). 7/15

(5) The crypto angle will be key for competition, low barriers to entry and innovation, and because it complements strong local institutions to create global spillovers, see papers.ssrn.com/sol3/papers.cf… 8/15

(6) There will be first-order gains for trade for people who do not currently have access to efficient transaction technology but do have access to a smartphone; for reducing frictions in small online payments and cross-border transactions; etc. 9/15

A key difference with a private company issuance is the desire to build a true public utility that is not controlled by any single entity. Re: data, we hope that competition between custodians will allow for multiple business models to flourish. 10/15

(7) We expect entrepreneurs, startups and existing players to explore a number of new financial applications on the platform. 11/15

(8) This will depend on the application, e.g. if the wallet used is custodial versus not, if merchant services are available vs not, etc. 12/15

(9) The hope is that the broader ecosystem around Libra will reduce transaction fees and increase competition throughout the financial services chain. 13/15

For more details on how entities will interact with the reserve (and more!): libra.org/en-US/wp-conte… 14/15

Thanks to @JMarkHou @kevalexzhang @ndoudchenko @nwernerfelt @ramnikarora @RobDonnelly47 @skominers 15/15