The Great Librexit
The dominant coalition has splintered. The Calibra association has fallen asunder, well, kind of.
PayPal led the mutiny, and many of the other members promptly followed.
The Libra association was one that formed rapidly and disbanded just as quickly. Each member knew of the surface level risks going in but might not have anticipated the in-depth scrutiny and push back from regulators across the world.
Libra issued strong statements and presented grand ambitions, much like a vast majority of the cryptocurrency projects that came out in 2016, 2017, and 2018. But the group is finding out that dreaming is easy; taking action is hard.
Payment processors likely teamed up with Facebook in the Libra Association to have substantial exposure to the future.
There are much more scrutiny and issues from legislators, monetary policy experts, and state entities all over the world.
Each payment processor from Stripe, Visa, Mastercard, and Mercado Pago, all are starting to peel back the layers of this regulatory laden Libra onion. They do not like what they see. Each of these ex Libra members, each of these financial entities, exists within the current banking and regulatory framework. They’ve developed their processes, cultures, and companies on this existing operating system. Every single one of these entities has received funding, has shareholders, and most, if not all, have found success and run profitable businesses within this current context.
Clearly, payment processors and financial companies that have built businesses around existing regulations have much more to lose than the leader of the project, Facebook. Whereas the other ex-members of the Libra Association have core businesses in the payments and financial realm, Facebook lives and breathes in an entirely different and emerging internet-oriented world. It thrives by facilitating communication, creating global communities, aggregating data, and monetizing the cumulative data by partnering with advertisers.
Facebook’s core business is in advertising.
It earned more than $50 billion U.S. Dollars in 2018 from advertising revenue.
The virtual currency (Libra) and its Geneva-based association is just a side business to Facebook.
eBay is also out of the Libra picture. This makes sense, PayPal used to be integrated inside the peer to peer e-commerce corporation.
These members have left the association before the rubber hits the road. The Libra Association will have its first meeting and will convene on the 14th of October. This meeting will be critical, as members of the Libra Association will have to make critical concessions and commit to playing a vital role in furthering the project.
All is not lost, while many high-profile members have left the Libra Association, 22 companies still hold the faith and remain. They still pledge allegiance to the purported open banking initiative helmed by Facebook. These members presumably have core businesses outside of the payments industry. They see much more upside by affiliation than those who’ve exited stage left.
It Is Tough to Be a Disruptor in A Heavily Regulated Industry
It is essential to take a look at bitcoin to understand how hard it is to be a disruptor in heavily regulated industries like payments, banking, and general finance. Bitcoin was formed in 2009 and is still being treated by different established entities as a joke. Many will still treat it as a vile currency or asset class. They state that it is a currency and system for money laundering. Similarly, other financial luminaries like Warren Buffet and Charlie Munger dub it as rat poison.
Bitcoin has still reached a variety of milestones across the board, it’s increased its market cap, possesses substantial volumes, and has spawned a wide range of compelling companies that support the facilitation of bitcoin. The leading digital asset can be a haven for those in countries such as Argentina, Venezuela, Zimbabwe, and other nations such as Turkey.
The President of the United States has disparaged it, the Federal Reserve has commented on bitcoin in its speeches, and other organizations have created their cryptocurrency projects due to the growing interest in this sector.
Suffice to say, bitcoin has created several ripples in the financial system over its short existence.
We’re still waiting on a bitcoin ETF, it’s still treated as a commodity instead of a virtual currency and still has a long way to go in terms of market adoption, but still, bitcoin persists.
Everything’s Not Lost for Facebook
Facebook still has 22 members; one of these members is PayU, a corporation based in the Netherlands that focuses on payments. Large brand name payments entities might have left the Libra Association, but it shows no signs of despair. It still seems as if the Libra Association, much like bitcoin, will persist and find ways to exist.
Strong support from those who reside within the payments sector would have bolstered the Libra Association, but it must continue without them.
Where does the Libra Association go from here? David Marcus has much work ahead of him as he navigates this perilous realm.
Potential Strategy and Branding Issues
The firm still seeks to deploy its virtual currency by 2020, a period that approaches rather quickly. The Libra Association must either scale its ambitions down and make Libra something that seems much like a plaything (as Facebook was seen at first) or pivot in a different direction. Regulators fear the excessive control one entity would have over money, something that would diminish monetary authority, and seek to mitigate this Libra threat.
David Marcus, the appointed Libra leader, noted that the association would do what it must work with regulators and see the project through to its implementation. He seemed reasonably confident that the project would go as planned and be operational in some form or fashion acting in compliance with regulators.
While it has yet to comment on how it will take every action to comply with existing regulations, it is still taking specific steps to further its vision and mission.
Presenting a distributed but united front is crucial for Facebook and the Libra Association, as regulators understand the level of control Facebook may have in politics, and in influencing people’s lives.
A recent report noted how Facebook inflated its ad relevance, with fake numbers, fake bots, and fake engagement, while only receiving a fine equivalent 0.18% of its revenue in one quarter.
It surely needs help and support from key entities to push the project forward unless or find a way to make it seem as if Libra is less of a threat.
The ZB Group Take
We’ve noted the complexity in merging the new with the old. There is always a clash, and the clash can be quite painful for all involved. Bitcoin faced it and still goes through this clash as it grows. Libra is going facing its hurdles and obstacles as it tries to enter into the cryptocurrency sector and become a central player in this emerging sector.
About ZB Group
ZB Group was founded in 2012 with the goal of providing leadership to the blockchain development space and today manages a network that includes digital assets exchanges, wallets, capital ventures, research institutes, and media. The Group’s flagship platform is ZB.com, the industry leading digital asset exchange. The platform launched in early 2013 and boasts one of the world’s largest trading communities.
ZB Group also includes ZBG the innovative crypto trading platform, and BW.com, the world’s first mining-pool based exchange. Other holdings include wallet leader BitBank, as well as exchange brands ZBM, ZBX and Korea’s Bithi.
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