Libra

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Libra
Headquarters	Geneva, Switzerland
Key People	David Marcus, Co-creator of Libra, Head of Novi; Kevin Weil, Co-creator of Libra, VP of Product at Novi; Stuart Levey, CEO of Libra Association
Twitter	@libra_
Facebook	Page
Website	Libra Homepage (U.S.)

Libra is a digital asset, or cryptocurrency created by Facebook. It is the native digital token of the Libra blockchain. Libra was designed by Facebook engineers and the blockchain code was contributed to the Libra Association, the Swiss foundation established to govern Libra. When announced by Facebook in June 2019, it had a target launch date of 2020.

History

Beginning in 2017, Facebook corporate development employee Morgan Beller began researching blockchain technology. In 2018, Beller started working on the Libra project with former PayPal executive David Marcus, who had been working on Facebook's Messenger chat service. The two later recruited Kevin Weil, another Facebook employee, for the project. Beller, who later moved to the wallet subsidiary, left the company for venture capital in September 2020.

On June 18, 2019, Facebook introduced its wallet subsidiary, Calibra, in a company blog post. Calibra also launched its own public website, together providing a de facto official public announcement of Facebook's cryptocurrency, Libra. Facebook said it is reinventing money with Libra so it can be used in countries around the world. According to the Calibra website, "It can easily be sent to anyone and exchanged into local currencies," though at its launch the site did not describe how to exchange Libra into local currency. In a press release available on the website, Calibra describes Libra's mission as providing access to financial services for people around the world who have limited or no access to banking services. Calibra's digital wallet is scheduled to be released in the first half of 2020. The announcement followed a year of widespread speculation about Facebook's intentions to become involved in cryptocurrencies.

Facebook's Novi (originally "Calibra")

Calibra was the original name of a fully-owned Facebook subsidiary as well as the name given to the wallet designed to hold Libra. The name change and associated rebranding to Novi were announced on May 26, 2020.

The stand-alone application (app) is supposed to work with other Facebook apps like WhatsApp and Messenger to transfer Libra from one wallet to another. Unlike other Facebook apps (and unlike bitcoin), Novi will require some know-your-customer compliance.

At the time of the website launch, Calibra released a description of its customer relations policies, including data privacy, compliance, consumer protections, and the relationship between Calibra and the Libra Association. In the statement, Calibra says, "Calibra will not share account information or financial data with Facebook, Inc. or any third party without customer consent. For example, Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook, Inc. family of products."

At the time of the name change, Novi said that its wallet could be used in conjunction with Facebook's WhatsApp and Messenger applications and reaffirmed that it can operate also as a stand-alone application.

Stablecoin development

"Libra" refers to the currency, the blockchain, the business and commercial network and the association. In June 2019, early access codes for Libra appeared on GitHub. Within two weeks, the project had been saved or "starred" by over 10,000 GitHub users, indicating significant interest in the project (for context, the top GitHub page for Ethereum had been "starred" by over 21,000 users around that time).

The primary coding languages used by Libra developers are Rust and Javascript.

Association

Libra Association is a non-profit, membership organization with headquarters in Geneva, Switzerland. At the time of the introduction on June 18, 2019, it had 28 "founding members," which were responsible for finalizing the association's charter. As well as managing the development and growth of the Libra network, the association's responsibilities include global outreach. The founding members were drawn from the following industries: payments (Mastercard, PayPal, PayU, Stripe, and Visa), technologies and markets (eBay, Booking Holdings, Facebook/Calibra, Uber Technologies, Lyft, Mercado Pago, Farfetch, and Spotify AB), telecommunications, (Iliad and Vodafone Group), Blockchain (Anchorage, Bison Trails, Coinbase, Inc., and Xapo Holdings Limited), venture capital (Andreesen Horowitz, Breakthrough Initiatives, Riggit Capital, Thrive Capital, and Union Square Ventures), and nonprofits (Creative Destruction Lab, Kiva, Mercy Corps, Women's World Banking). In 2020, the association added prime broker Tagomi, which was later bought by Coinbase, payment startup Checkout.com, and Singapore's state-owned investment behemoth Temasek. On September 18, 2020 Blaockchain Capital, a specialized investment firm with more than 80 holdings, became a member.

To qualify as a member of the Association, a commercial entity must meet specific technical capacity requirements having to do with Internet connection and cybersecurity as well as site and enterprise reliability. The enterprise should reach 20 million or more people per year and have considerable financial wherewithal. Cryptocurrency investors must have more than $1 billion under management.

In October 2019, PayPal announced that it had withdrawn from the Libra network. A month later, the company's CEO Dan Schulman said that the company had pulled out of the alliance to focus on its own blockchain project. As the month went on, Booking Holdings, eBay, Mastercard, Mercado Pago, Stripe and Visa also quit the association.

The association announced on October 15 that 21 initial members of the Libra Association officially agreed to the Libra Association charter, formalized the council, elected the board of directors, and appointed the executive team.

Banks

By July 2019, the Association had 27 partner organizations - none of which was a bank. David Marcus, Libra project lead at Facebook, told the Financial Times that the association was still negotiating with banks, and that he expected that in time, some banks would sign on to become part of Libra. Netherland's ING was approached unsuccessfully, as was Citigroup, Inc.. Head of Citigroup Mike Corbat said that, although he was bullish on cryptocurrency and blockchain in general, the AML/KYC requirements of Citi limited its ability to participate with the Libra network.

Technology

Blockchain

The Libra Blockchain is described in a technical document of the same name that was developed by employees of Calibra and donated to the association. It is their equivalent to what many startups refer to as a white paper. (In contrast, the Libra White Paper describes Libra's mission and the workings of the association and network.)

Libra will run on its own blockchain supported by a proof of stake algorithm. The nodes are to be widely dispersed, have high technical requirements and run on a Byzantine-Fault-Tolerant consensus.

Smart contracts will be programmable in a new language called Move.

Bug bounty program

In August 2019, the Libra Association launched a bug bounty program, offering up to $10,000 in rewards for discovering critical issues on the Libra blockchain.

Steering committee

The association established the Technical Steering Committee in December 2019 and named its five members one month later: Diogo Monica, Co-Founder and President at Anchorage, a digital asset custodian; George Cabrera III, core product lead at Calibra; Joe Lallouz, CEO and founder of Bison Trials, a blockchain infrastructure company; Nick Grossman, partner at Union Square Ventures, a venture capital firm; and Ric Shreves, director of emerging technology at Mercy Corps, a global non-governmental, humanitarian aid organization.

Libra reserve

Libra will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from "stable and reputable" central banks, according to the companies' white paper. The assets will be held by geographically dispersed custodians. According to the website, the reserve will not be actively managed.

The reserve is funded from two sources, purchases of a separate Investment Token that originates with Association members and the purchase of Libra by users. The reserve is invested in low-risk assets, the interest on which will help support the Association's operations and, if available, be used to pay dividends to holders in the Investment Token.

Libra users will obtain Libra tokens from "authorized resellers [which] will integrate with exchanges and other institutions that buy and sell cryptocurrencies to users, and will provide these entities with liquidity for users who wish to convert from cash to Libra and back again," rather than from the reserve. Changes in the value of Libra will come from the changes in the foreign exchange markets for the component currencies.

Push back

The announcement of Libra's development caused significant pushback from legistlative and regulatory bodies - not to mention figures within and outside of the cryptocurrency and blockchain space - all over the world. Maxine Waters, chair of the House Financial Services Committee, told CNBC in late June that Congress planned to "move aggressively and very quickly to deal with" Libra. G7 announced that the group would create a taskforce to study stablecoins in order to learn how best to regulate them. Representatives of the central banks of Britain and Germany, as well as the U.S. Federal Reserve also said publicly that the developers of Libra should expect scrutiny from each of the respective organizations. Bank of England governor Mark Carney told the BBC that Libra "has to be safe, or it's not going to happen." Jenx Weidmann, governor of the German central bank, said that stablecoins "could undermine the deposit-taking of banks and their business models," if they became more widely used. Benoit Coeure, a board member of the European Central Bank (ECB), said that it was "out of the question to allow [Libra] to develop in a regulatory void," because it was "too dangerous."

Fritz Zurbruegg, vice chairman of the Swiss National Bank, said that the documents meant to explain Libra and the technology behind it are "very vague," and were missing crucial details.

International

The U.K. Financial Conduct Authority (FCA), the Bank of England, and the U.K. Treasury announced in late June of 2019 that they were in the process of working together to determine how best to regulate Libra. Andrew Bailey, chief executive of the FCA, said that the Libra project "touches all three of us," and "has the potential to be extremely significant." The international Financial Stability Board (FSB) also said it would be keeping a close eye on the project around the same time, even sending a letter to G20 leaders ahead of their summit in Osaka, Japan; Randal Quarles, the head of the FSB and vice-chairman of the Federal Reserve said that "wider use of new types of cryptoassets for retail payment purposes would warrant close scrutiny by authorities to ensure that they are subject to high standards of regulation."

Referencing Facebook's internal corporate motto, "move fast and break things," in July a senior regulator for the FCA, Christopher Woolard, warned cryptocurrency issuers - including the Libra Association - against "cutting corners" when striving to provide innovative technology. He also said that new innovations would have to work in the interests of consumers, ensuring that they understand and actively consent to "tradeoffs" inherent to the business models of new financial service providers, and to consider their broad impact on international market stability, as well as the need for new jargon to discuss the technology and its impact on society.

According to Reuters, Olaf Scholz, finance minister of Germany, said on July 16, 2019, that regulators must assure that Libra and other cryptocurrencies do not threaten financial stability and privacy. The remarks were made ahead of a meeting of the G7 finance ministers' the same week. In August 2019, antitrust officials representing the European Union opened an official investigation into Libra.

French finance minister Bruno Le Maire said in an interview with The Independent published September 11, 2019 that Libra would not be authorized for development "on European soil," saying that the stablecoin represents a direct threat to the monetary sovereignty of states that could "substitute itself as a national currency."

In December 2019, finance ministers of the European Union agreed to a de facto ban on "global stablecoins," saying that "no global ‘stablecoin’ arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.” The European Commission is also working on creating regulation for global stablecoins.

U.S. Congress

Anticipating the developments that became Libra, the U.S. Senate's Committee on Banking, Housing, and Urban Affairs sent an open letter to Mark Zuckerberg, Facebook's embattled founder, chairman, and CEO, already on May 9, 2019. The letter, which was signed by the top Republican and top Democratic committee members, requested answers to seven questions concerning the currency's privacy protections and regulatory status. David Marcus responded to the Senate's letter with direct answers to each question in correspondence dated July 8, 2019. His letter discussed many of the mechanics and structure that Libra included in its white paper.

In July 2019, a group of Democrats serving on the House Financial Services Committee sent a letter addressed to Mark Zuckerberg, CFO Sheryl Sandberg and David Marcus, CEO of Facebook’s Calibra digital wallet. The letter was signed by Committee Chairwoman Maxine Waters (D-Calif.), Rep. Carolyn Maloney (D-N.Y.), Lacy Clay (D-Mo.), Al Green (D-Texas), and Stephen Lynch (D-Mass). The letter asked for an immediate halt to all development of the Libra project, citing massive risks to investors, consumers, and the broader global economy posed by Libra.

In an information gathering exercise, Marcus appeared on July 16 and July 17, 2019, before the Senate Committee on Banking, Housing and Urban Affairs (Banking Committee) and the House Financial Services Committee, respectively. Marcus was invited to answer questions and address concerns from the committee members. Additional witnesses who were not connected to Facebook or Libra appeared each day on separate panels from Marcus's. The New York Times characterized the tone of the hearings as being largely critical of Facebook's plans.

The chairperson of the House Financial Services Committee, Congresswoman Maxine Waters, announced on August 23 that the committee was including Libra and Calibra in its fall 2019 priorities. Earlier in the month, Waters had led a delegation of members of the committee to meet with Switzerland's State Secretariat for International Financial Matters, the Federal Data Protection and Information Commissioner, and the Financial Market Supervisory Authority (FINMA), o discuss Facebook’s plans for Libra.

U.S. Government officials

In testimony to the Senate Banking Committee on July 11, 2019, Federal Reserve Chairman Jerome Powell said he had “a lot of serious concerns” about the social-media giant’s plans. He also said, “The size of Facebook’s network means it could be, essentially, immediately systemically important.” In the course of a roughly contemporaneous Twitter barrage, U.S. President Donald Trump predicted that Libra would have “little standing or dependability." On July 15, U.S. Secretary of the Treasury Steven Mnuchin pointed to past use of cryptocurrencies by criminals and said that Libra therefore raised national security concerns.

Other voices against libra

Aside from regulators, others expressed skepticism over the product. Chris Hughes, co-founder of Facebook, wrote an opinion piece for the Financial Times entitled, "Facebook co-founder: Libra coin would shift power into the wrong hands." In it, he said that if Libra were to launch and become widely-used as it was planned to at the time, it could "insert a powerful new corporate layer of monetary control between central banks and individuals," which would put the private interests of such corporations (profits and influence) ahead of public interests. Avi Mizrahi wrote a similar piece for Bitcoin.com entitled, "Facebook is a Threat to Governments Not Crypto," arguing that the adoption of something like Libra could lead to public surveillance far more intrusive than what is demanded by existing KYC/AML practices.

In June 2019, Nouriel Roubini was interviewed by the Financial Times' Alphaville. In the interview, he discussed his feelings on Libra, saying that Libra is "blockchain in name only," as the technology doesn't use a proof-of-work function to verify P2P transactions; that it's permissioned and centralized, not trustless, and that the Libra token "is either a security, and thus to be regulated by security regulators, or it is a bank that will need a bank license and needs to be regulated accordingly." Roubini said during the interview that he believes the creation of Libra is a power play by Facebook designed to counteract the U.S. government's attempts to exercise anti-trust policies to curb the power of big tech firms. He also said that Facebook was trying to "become the central bank of the world with a coin that, if successful, will have systemic risks," since the stablecoin will supposedly be linked to a "basket" of different fiat currencies, meaning users of the Libra token will be "subject to massive currency risk." Brad Garlinghouse, CEO of Ripple, said that although Libra would probably ultimately help improve cryptocurrency adoption, in practice it could potentially cause stricter regulations for the digital asset industry. "You just want to make sure that you don't get caught in the crossfire," he said. "It is important to me that when regulators start asking questions that they don't lump us into one big bucket."

In July 2019, one of the authors of a paper published by the Massachusetts Institute of Technology (MIT) in 2018 told Coindesk that the structure of Libra was "pretty much lifted verbatim" from the 2018 paper. The paper, which was entitled, Digital trade coin: towards a more stable digital currency, proposed an "asset-backed transactional oriented cryptocurrency" called the digital trade coin (DTC), which the authors described as "a much-needed counterpoint to fiat reserve currencies of today." The authors of the paper - Alex Lipton, Thomas Hardjono and Alex “Sandy” Pentland - are not mentioned in Libra's whitepaper.

Internal

In August 2019, the Financial Times reported that at least three Libra member organizations were privately discussing how to distance themselves from Libra. This was largely attributed to regulatory and government scrutiny against the project, and the significant negative attention it caused.

Counterarguments

In October 2019 Andreessen Horowitz partner Katie Haun, a former U.S. Federal prosecutor, said in a CNBC story that shutting down Libra could have national security implications. Haun pointed to State stablecoin projects being developed by China and Russia as examples of why the U.S. should embrace the technology for the sake of not being "left behind," and said that it would establish "frankly, a dangerous precedent" to shut the project down before it was completed. It is worth noting that Andreessen Horowitz is a founding member of the Libra Association.

Libra 2.0

The Libra Association published a new white paper and new editions of previously issued technical documents and deleted newly out-of-date technical documents on April 16, 2020. The revised foundation paper, White Paper v2.0, includes four changes made to the Libra design in response to regulatory concerns that arose since the project was launched ten months earlier. The most significant change is that instead of one Libra backed by a multi-currency reserve, the association newly proposed additional Libras, each tied to a different fiat currency. The association also abandoned its plan for Libra to transition eventually to a permissionless version. Libra 2.0 also includes upgraded compliance measures and enhancements to the design of the reserve.

Launch

In December 2019 Patrick Ellis, a board member of the Libra Association, told Reuters that the Association did not have a solid launch strategy in place. He said that it was "too early" to do so, and that as talks with regulators continued, Libra planned to shape its strategy accordingly.

When asked if Libra was likely to launch in 2020, Ellis said, “yes. Yes, it’ll launch.”

Libra was being readied for an early 2021 launch according to late November 2020 press reports. Approval from Swiss authorities for the venture, which was thought to be the only remaining hurdle, was expected to be granted imminently.

Key People

• David Marcus - Co-creator of Libra, Head of Libra and Calibra
• Morgan Beller - Co-creator of Libra, former Head of Strategy at Calibra
• Kevin Weil - Co-creator of Libra, VP of Product at Calibra