Stablecoin and LIBRA - What You Should KnowBy Aug 29, 2019 5 Min Read
Stablecoin is a crypto asset with the wrong name!
As described in my last article , stablecoins were created to be used in the way cryptocurrencies were intended for transactions: User-friendly, stabilized, scalable, and secured. A functional and viable characteristic to increase adoption and facilitate a valuable startup growth in the ecosystem. Here, are the main types of stablecoins:
- Fiat-Collateralized Stablecoins
- Asset-Collateralized Stablecoins
- Crypto-Collateralized Stablecoins
- Non-Collateralized Stablecoins
The role of stablecoin is designed to stabilize ONLY its own value, NOT the crypto market and, the story shows that even stablecoins are NOT stable (ref: Nubits story and many more).
Stablecoins are not only unstable but suffer strong misunderstandings that create hype and make people lose a lot of money.
The best option, we can trust Fiat-Collateralized coin, for they are backed by the tokenized physical asset (metal, fiat). Tether remains one of the best solutions. According to Miko Matsumura, co-founder of Evercoin, “it is shady if not USD vs Tokenized dollar or gold”.
The problem starts with the definition!
I do not understand the definition of stablecoin. Tokenized X asset is really clear because you want to use the asset (let’s say USD) ecosystem using blockchain. If the reserve is maintained and done properly, you are set.
The problem of Stablecoin is that it is different from the currency:
1. No monetary essence by design
2. No need for volatility and stability, only focus on stability
3. No adding value except for trading crypto/fiat. That is why it is popular for traders to use freely converts between different cryptocurrencies, and then lock in profit, be kept as own fiat reserve
4. There’s already too many of them and they are just a temporary solution.
Stablecoin is therefore not the right term but still in use for the hype and the adoption. Their true name should be “pegged coin” according to, Miko Matsumura, in the BTC Trading conference in Barcelona.
- Issue 1 : if you are asset backing against the pegged, then the stability of the token is always going to be less than the other asset by necessity
- Issue 2 : Stablecoin is stable until it is not stable: you just have to see the USD currency history
- Issue 3 : It is a fraction of reserve, issued by someone who is not completely transparent
Stability is dangerous psychology in the market perspective. A big promise, but it is a dangerous and volatile promise, abuse by many actors and people lost a lot of money because of it. The point is not to renounce to the true potential of disrupting monetary theory and solutions but to protect the investors and newcomers in this ecosystem.
That is why the idea of “stability” is not interesting or even correct. The pegged coin is the better way to look at it. You can say: “It is an asset-backed (pegged coin) with a 100% reserve ratio of fraction reserve ratio” (Ido Sadeh Man - SAGA Foundation)
Regulation is the major issue:
Ask yourself 2 major questions:
1. How do I know how much money is in the reserve of the pegged?
2. How do I know how much this reserve is committed to actually redeem the coin?
Transparency on a daily basis is mandatory with a structure that makes sure the reserve is committed to actually redeem the coin.
The best action we should do to mitigate the risk is to change the name by “pegged coin” and implement a clear regulation. The government has to analyze the application of how it is used and what kind of regulation we need.
LIBRA- the rise of Facebook citizen community
What is LIBRA?
A payment system with a “stable coin” but not limited to as there is an open-source ecosystem around it. This allows software developers to build apps, which uses Libra as the native token. Libra is designed to be a digital currency used inside Facebook and other apps the company owns (such as WhatsApp). It’s very likely that Libra can also be used in partner sites like eBay, Uber, and Coinbase. At first, Libra will only be available in the Facebook messenger app and WhatsApp. With the other partners in the Libra Association, it is accepted that those companies will find ways to integrate Libra payments.
What is LIBRA all about?
LIBRA is a payment network and it is not a Stablecoin. Facebook would benefit a lot of from us thinking that LIBRA is a Stablecoin and would make LIBRA a payment network very much a keen to pay with direct access to 2.38 billons wallets (Facebook and WhatsApp).
There are 2 perspectives of analysis:
Commercial and interest perspective:
- LIBRA brings a lot of interests and boost adoption
- Real-world Fiat to Crypto conversion
- The massive number of Facebook and WhatsApp users worldwide
- Proven tech companies in most industries as partners
- Supporting the bullish Crypto Market
- The 2.38 BM of users can bring stabilization by the volume.
Government and ideologic perspective: LIBRA is dangerous and at risk!
- Regulations concerns
- Too powerful
- Not decentralized
- Not banking the unbanked
LIBRA may not survive. As a payment system user, you become a citizen of FACEBOOK. So the government may not let it happen. State model and LIBRA as a financial network have to coexist. This is the point in time where the state model works or not. The impact of +2B citizen of FB will impact the currency value. LIBRA may do better in some countries where the currency is fragile but not in developed countries.
If the government considers LIBRA as a pegged coin, LIBRA will not be a security. If it happens, it happens not in the form of a corporate. LIBRA is much more than a financial solution, it is about a change in the sovereignty in the world as we know it. In this regard, I wish it will remain democratic within the nation-state or not within the nation-state. The government structure has to face a big challenge. FACEBOOK is already handling our data and not very democratically so. I think for all of these reasons if LIBRA happens, the government has to take the lead even over finance, because it will not coexist with the nation-state as we know it.
Food for thought: Today, you cannot shutdown FACEBOOK if it does not comply with the regulation or because it is taking a dump of the Euro.
Some are thinking that it is overstating that FB becomes a national entity at the point of minting.
Only one thing is sure, there is no Stablecoin but pegged coin and the governments (G20 and G7) have to urgently regulate as it is or ask modification to make it happens with a good coexistence between states and LIBRA. If LIBRA can do better than the country actually perform, coexistence is the key to avoid a negative impact on the traditional economy and implement the right democratic governance structure to protect citizens.
Images via Financial Times
· Neo (Lili Zhao) — Director of ecosystem Growth
· SAGA Foundation (Ido Sadeh Man)