Thread by @MirakhorHassan

Take a look at the firms involved with Libra. What is missing?

AFAICT, there is none with a direct Interbank FX trading desk. Maybe Women's world bank, but that would hardly qualify as anything serious to scale.

Maybe PayPal, but I doubt they will execute for free, plus one more middle man increases the risk significantly.

Point is, someone has to take the risk out of all the forex positions needed to keep Libra a "stable coin". This stuff doesn't happen in a vaccum.

Forex is a highly volital market where significant price changes can happen in an instant. This means you will need instant conversions to minimize risk, but that doesn't completely remove the risk.

If Libra is simply going to shift this risk to the consumer, then they have no business calling themselves a "stable coin". Frankly, I have yet to see a so called "stable coin" that does qualify.

You can go broke in minutes trying to execute large scale FX, which means you will need algos that convert instantly!

"but surely Facebook has this figured out," you might say, but you can't imagine how ill prepared companies can be when it comes to hedging FX.

The common denominator I see among computer geeks, is a complete lack of understanding of risk. Notice how few if any have even mentioned this obvious problem.

So far, I have seen nothing from any source, including Facebook, about how the risk is going to be managed. Everyone seems to be pretending it doesn't exist. Which is just ridiculous.

Basically, it looks like Libra is going to use something like the SDR (along with some relatively safe debt instruments) as it was before the $yuan was added to the index. A smart move, as the spreads on $yuan are high, since the only available currency is offshore.

Once the funds are indexed, they should be fine. However, during the time between PoS and conversion, the risk is all on Libra.

Which of the companies involved is assuming this risk? It is not very clear, but none of the companies involved seem prepared to do it.

Looks like it will be a risk shift to the end user as mentioned before. So I have serious doubts as to the long term viability.

Just the front running on Libra conversions (likely publically known beforehand) will be difficult to manage and that is just the beginning.

It is amazing how quickly margin on transactions can get squeezed out of existence, but that could be the least of the problems, as disappearing margins can also quickly become significant losses over time.

One huge black swan could crush Libra and if it grows enough beforehand, such risk could quickly become systemic.

One last point. You might assume that Visa or MasterCard could handle this, but if the conversion rates they provide to consumers is any indication, I will continue to have serious doubts.

Again, this is looking more and more like a risk shift to the end user.

Not a stable coin