Facebook's New Cryptocurrency, Libra

Facebook’s new cryptocurrency Libra is in the news these days. However, a Company needs to invest at least $10 million to join the Libra’s Association. Members that verify their transactions can invest more in Libra in exchange of investment tokens, which will get them dividends from the interest of Libra Reserve. So, if the members invest tons of money in Libra, the Reserve that holds these assets could get them substantial returns.

Each Libra member will only have one vote in the council. This rule also applies to Facebook. However, if Facebook invests $500 million and another Company invests just $10 million, Facebook will have a bigger chance of getting people into Libra. Facebook could also hold the cryptocurrency, so it earns dollars or fiat from the Reserve. That would give Facebook the governance decisions, which would benefit it big time.

Before the Libra Announcement, Facebook’s head of blockchain, David Marcus told the press, “The reserve gives interest on some treasuries. It’s a small amount, but if there are big reserves, it would become a way to return capital and fund the association.”

Although Facebook offers complete transparency regarding Libra, it still hasn’t told anyone how much it has invested in the association. This should be the main question Congress should raise when Marcus testifies before the House Financial Services Committee and Senate Banking Chair in the coming week. Another question that Congress should ask is how Libra can avoid a big disaster since there is no review of apps built on the platform.

The proportion of total investment tokens shows how decentralized the association is. If Facebook has the majority share in the association, it can always bend the rules in its favor. The reason is that Facebook has made the development of Libra possible until today. Therefore, it is just a new project of Facebook right now. Marcus said, “So far, we have been financing it all. We have also been organizing and coding it.”

For now, this project is nothing without Facebook. This means that Facebook can make bold moves. For example, it could disagree with the Libra association so strongly at any time and threaten to leave it. It would be a significant threat to all other investors. Facebook could also force the members to vote in its support. Therefore, having only one vote in the council doesn’t affect Facebook’s influence.

Marcus said in a Facebook note yesterday, “We will make the investment of each partner public when we are live.” However, that isn’t a guarantee. It might be too late for the regulators to truly understand the asymmetry by then.

However, Marcus stated, “We are giving money to the association because we know that at some point we will get it back.” This raises many questions, like how deep is Facebook into the Libra project and how much money it expects to get back. Members would be hesitant in investing if they come to know that their $10 million would just be used in paying Facebook back.

There are many other ways that Facebook can earn money from Libra. Marcus wrote in the post today, “If this project becomes successful, we would enable commerce on other apps. More commerce will make ads more effective. The advertisers will then buy more ads to boost their businesses. Moreover, when our Calibra wallet becomes popular, we will start offering more financial services. Therefore, the Company would be able to generate many new revenue methods.”

Libra could also connect with many other people. For example, it could aid the people who haven’t enough money in their accounts to pay for different things. However, Facebook will earn big money from Libra in the future by itself. This will make people question just how decentralized the whole project is.