What’s Next In Libra’s Serial Cliffhanger?

Only four months in, Libra’s twists and turns are worthy of the serial cliffhangers of old.

The cliffhanger? Those were action-packed films of cinema’s early days that were updated weekly with short bursts of action that left you wondering at the end: How is the hero going to get out of this deathtrap?

Ropes!  Chains!  Runaway trains!  Regulators! Mass defections!

Those last two are, of course, are the challenges that face and have faced Libra since its June announcement.  Depending on how you view this movie — call it the saga of the crypto — Libra is either a hero or villain.

For those who see Libra as the hero — where an alternative currency takes root and challenges central bank fiat, gains acceptance, promotes financial inclusion for more than a billion people — this past week’s event means that the Libra Association will live to fight another day.

But the uphill climb remains steep.

As has been widely reported, Libra went into its Monday meeting in Geneva, some high profile backers, well, backed out. The roster of defectors included Visa, Mastercard, PayPal, Stripe and Mercado Pago, eBay and Booking Holdings.

We noted back then that these companies would have provided the crucial infrastructure underpinnings of processing and marketplaces that Libra would need to get off the ground, to make the transition from concept to reality. After all, any new digital currency needs functionality and availability to be useful.

Monday, then, marked the announcement of the Libra charter. Beyond the board of directors appointed, there also was a listing of the Association members that signed on. The membership roll includes a single payments processor: PayU. For the marketplaces, where once eBay had been in the ranks, the adherents include Lyft, Spotify and Uber.

The members can leave for any reason. They can also transfer their $10 million investments — which back the yet-to-be issued tokens — to other eligible organizations. Sounds a bit to us like tag teams: One partner switches out but tags in another teammate who is game to go — and Libra tokens, of course, stay in the pot.

Now, Libra having 21 backers is not nothing, and it signals an implied $210 million commitment to the Libra project.  But the group initially had 28 members, and a net seven defectors is a significant reduction in both a financial commitment and at least some cachet the initiative would have had in its quest to quiet regulators’ ire.

Everybody Into The Pool?

The Libra Association said in the wake of the meeting that there are more than 1,500 entities that have expressed interest in the project, and of that tally, 180 meet primary membership criteria.  That’s a 12 percent “hit rate” and to us signals that while the interest is there, the available pool may not be the best fit.

The Libra thresholds, as the association details in its documentation, require that firms must have two of the following: A $1 billion market value, $500 million in customer balances, must reach 20 million customers or be recognized as a top industry leader.

That’s a pretty wide net.

The customer balances and customer-centric requirements seem focused on the financial institutions that would be necessary for widespread Libra adoption (such as banks, where Libra sorely lacks support) and marketplaces (where consumer and merchant adoption would take place).

Of the 21 backers now, many are true believes in crypto, with blockchain firms among them such as Anchorage, which focuses on crypto security, and Coinbase. There are also venture capital firms such as Union Square Ventures and Ribit Capital on board. Nonprofit and multilateral firms include Mercy Corps. and Women’s World Banking. The crypto players who want to sidestep the payments rails that have been in place on a global scale may tout that doing so would make transactions cheaper.

It remains unexplained — thus far — how ignoring (or not getting support from) vital parts of the commerce ecosystem would get funds to and from the 1.7 billion individuals targeted by the association.

Without bank or major network players, there are no real conduits to storage beyond the untested Calibra wallet, which means Facebook has a bit of a monopoly on the endpoints, a proposal unlikely to please regulators. If banks and card rails are out of the mix, that leaves cash. It’s not likely that money transfer firms (like Western Union and MoneyGram) would themselves fill the vacuum for the infrastructure that is sorely lacking, given the substantial oversight and regulatory scrutiny focused like a laser on money laundering and AML.

In the meantime, the clock is ticking. China, for example, is racing to get its own crypto ready to protect what it views as monetary sovereignty. One note: The New York Times reported this weekend that the state-issued e-currency might give the government insight into what people buy, which brings privacy and the use of individuals’ data into sharp focus. If Calibra is the only wallet, similar questions are sure to be lobbed toward the Libra Association (and especially Facebook).

Dimon In The Rough (Prediction) On Libra

As for the votes of confidence that Libra really needs, here’s a signal that bank support may not be forthcoming: Headed into the weekend, Jamie Dimon, the CEO at JPMorgan Chase & Co., said Friday at a Washington D.C. panel that Libra represents “a neat idea that’ll never happen.”  Dimon’s firm, of course, has a vested interest in stablecoins, through its own JPM Coin efforts. Bloomberg reported that the discussion — which went to topics beyond crypto — touched on the fact that bank’ tech spending tops billions of dollars.

We’d think that banks, if they want to get to crypto ahead of Libra, or compete directly, would view the couple of hundreds of millions of dollars that Libra has in its commitment kitty as a rounding error.  Plus, of course, the banks already have payment rails and relationships in place with Visa, Mastercard and others.  Libra, according to reports, is not getting support from JPMorgan based on concerns over possible use in criminal activities involving money laundering.

And it is the concerns over security and regulation that will likely be the dominant theme when Facebook CEO Mark Zuckerberg heads to Capitol Hill this week to discuss Libra. In the meantime, the European Union is eyeing legislation to prevent Libra from being introduced at all, as some regulators view the digital currency as a systemic risk to the Euro.

As they used to say in the darkened movie houses of old: Stay tuned for the next thrilling chapter.