🇬🇧Libra by Facebook: Back (analysis) to Square (scenarios)
Posted on June, 27: the first scenarios about Libra.
Now that on Libra the storm of opinion makers seems to be weaning we see what the point is and how you can go om.
First observation is that the actors are four. Facebook, which has designed the product ; the product is a cryptocurrency called Libra ; it will be run by Libra Association, a not-for-profit high reputation in terms of participants ; finally, one of the ‘techno’ (non-founders) members of the no-profit is Calibra, a Facebook affiliate, ad-hoc created, for managing payments. So Facebook doesn’t directly control Libra but, if anything, it will handle transactions, nay part of them through Calibra : the theater strategy then sees, from the monetary side, a set of defined and unconfusing players in the roles.
Second, the white-paper, which illustrate the potential operation of the cryptocurrency : it is described as stablecoin with specific features well illustrated by Benedict Evans (Andreessen Horowitz). On the operating side, therefore, nothing new more or less : the most is the potential catchment area already in the project’s portfolio, consisting of more than two billions people.
The third point is Calibra that, for now, is announced as the one that will manage monetary transactions on the platforms that lead to Facebook and will provide services of wallet, and stand-alone exchanger, for those who want to use it. In addition, Calibra is expected to be provided as a financial services provider in the future. On the tactical side, therefore, the progressive coverage of the financial market is observed from monetary transactions, through diversified products whose target goes far beyond the exploitation of the potential portfolio in the home. The affirmation is based on the analysis of Libra’s presentation (video and site). It is centered almost exclusively on locations and characters placed in developing countries and on the concept of unbanked.
Finally, on the technical side, nothing is given to know : when beta-test and other will be available, under the different points of view, you will be able to evaluate strengths and weaknesses. For now, who speaks about it speaks to the wind. Idem for the conjectures about the transaction costs. The only model to refer to, with the distinction of the case, is WeChat in China : it works very well and has a very high penetration.
On the competitive side, therefore, the situation is that you could be faced with a supposition of disruption of actual money and financial markets, as it doesn’t occur since the invention of the scriptural currency. An innovative technology, the blockchain, in its monetary and financial aspects, encounters (it is adopted and has reached a technological maturity such that it can be), a player who has the strength and power to turn thinks upside down. The ‘thinks’ is the current payment system with the etceteras.
Conditional is required, not only for historical reasons, but also in the face of how the situation is evolving. First if Facebook wanted to start tomorrow morning with Libra it could have done it without problems, even just delaying the presentation and putting it immediately to the back of the on-line of the stablecoin. They took, not by chance, more than six months (in theory, indefinite at the limit) between the announcement and the possible on-line to metabolize the reactions that are the difference between saying and [ how being able ] doing with the minimum risk.
Then, nothing has been said from any of the other big-ones. From Google, Microsoft, Apple everyone has a similar project in the drawer (Amazon even left years ago with an affine idea, in the intents, revealed a failed misery) but nothing leaked out in the matter. This with purpose of comment or potential membership or, even, competition. In disruption perspective anything would not change , with a perspective of market dynamics a lot. This is a key aspect for the overall scenario to be kept under observation and to which no one has given, for now, relevance.
The reactions of the financial and monetary establishment. As Paolo Savona (CONSOB’s chief) says: ‘…if the banks lose the payment system they are over’ : this is the actual risk associated with Libra. The most awake soon realized that the stakes are no longer the Bitcoin.
A kind of problem to deal with an innovative money segment that, even if it came to the $1,000 billion cap (for now never happened, not even at the best time of Bitcoin), however it is extremely parcelled and characterised by unconnected and competing individuality. Another matter to deal with who, as the Americans say with baseball metaphor, ‘They have balls, bats and also makes the rules’, as the story indicated so far for Facebook. In other words, a matter is to invent laws, or modify the existing ones, to try to harness many small, uncoordinated realties; completely different to make rules at home of those who the rules, by size and power, do themselves.
Finally a consideration. The structure that Facebook has given to the entire Libra project does not seem to indicate as the primary will the conquest of the payment and finance market. It appears, rather, to be part of a strategic theater with two goals : the first to obtain more data (transactions) from the existing user portfolio, continuing to have them even if they disengage from the core-business of social media ; the second, use their finance to penetrate new markets (territorial and social). If you create a successful parallel financial system in the process, it will be a second-best, compared to the primary goal of managing transactions and their content. Zuckerberg’s great strategy seems to be perpetuating, therefore, always in getting as much data as possible from the people who cross his own creatures. This reflection can help the path of those who continue to wonder where and how Facebook gains from the whole thing.
The short-term scenario, that is until Libra will be on-line, does not foresee major operational upheaval. It will be useful instead to see how big-competitors and the actors in the traditional sector move. With regard to the first to think badly, which is always useful, immobility is such as to even speculate a tacit cartel: under observation with great care. With regard to the latter, anticipators are already jumped on the bandwagon of the no-profit and the discerningare preparing to rise up, at least with a function of link between two planned parallel realities. The mass, overwhelming, is not ripe yet even to intuit what kind of hammer blow is coming to the sector. The institutions are starting to question themselves under different topics, and it is good to follow the debate.
In the medium term, since Libra will be on line, the predictable scenario at this time is imposing of a parallel money market, with its own rules, compared to the current one : in it the mantra is ‘disintermediation’. The breadbasket of fiat currencies that make up the stablecoin is a technical detail, however important : the end of fix convertibility (and thus the free floating of Libra) will also mark the end of the medium term, so the maturity and eventual success of Libra. In the meantime they will have to reason out-the-box for the establishment of a dialogue with the ‘new world’ that, as we have already said, historically is not very sensitive to the rules of others ; this to the benefit of the many who, undaunted, continue to get worked up about it (and do so to those who read them) with strals about money laundering, privacy, regulations to which to be subdued and whatnot. The basic concept is that, if all proceeds as expected, you are going to have to deal with Gringotts Wizarding Bank of the Henry Potter saga : other reality, other approaches to be invented.
In the long run, as John le Carré says, we will all be dead and now there are no elements to predict significant configurations (for posterity, if they affect them) based on objectivity. However, the screenplay looks a lot like the one seen at the time for the tourism sector. It is supposed that disintermediation will have noticeable effects for physical locations and (today) digital locations but will be revolutionary for behaviors, rules, governance and reference actors. In other words, and for poetic justice, Zuckerberg could succeed where Bitcoin & C. have for now failed.
This is adaptation of a neuronal Italian/English AI translation by IBM Watson.
Below links for further reading on the concepts expressed above.
Benedict's Newsletter: No. 293
Facebook money FB finally announced its plans for a digital currency based on bitcoin(ish) technology: 'Libra' is a…