Stablecoins will change the world – this is how
Libra appears to be focusing on developing a stablecoin that is stabilized by a basket of currencies, instead of using a single, dominant currency as collateral. In this sense, libra’s stablecoin parallels Maker DAO:s dai; a stablecoin that maintains stability from a basket of cryptocurrencies. This move into stable cryptocurrencies sends major signals to the rest of the world.
The Libra Association aims to provide digital money which can be linked to popular online services (Messenger, Whatsapp, Instagram, Facebook Marketplace, etc). Throughout their services, Facebook has billions of users. Ultimately, this implementation of a stablecoin could be the first step towards cryptocurrencies becoming adopted by mainstream audiences.
The stablecoin, libra, is housed in a wallet interface they call Calibra, and will likely integrate with third-party services via APIs. With many high-profile partners, Calibra can integrate with a wide variety of services, from hotel bookings and ride-sharing to cryptocurrency exchanges and payment service providers.
The difference is, in contrast to cryptocurrencies, we run the risk of taking the notion of democratization of money away from crypto. The original purpose of bitcoin (and many other cryptocurrencies), was “freedom of money.” In crypto, the user holds responsibility for their funds through the administration of private keys.
Uber, Paypal, Visa, and Mastercard, as well as Stripe, have allegedly pledged support and investment for the project and will be among the organizations hosting verification nodes in the Facebook stablecoin network. These nodes cost $10 million to run. Ultimately, the partners will be part of a dividend payout scheme that Libra provides through an investment token called libra investment token (LIT). These tokens are issued in exchange for an initial contribution to the project.
Libra is a stablecoin where the underlying collateral is a basket of major currencies (USD, EUR, GBP, JPY). In essence, it resembles an exchange-traded fund, in the sense that it derives its value from multiple underlying assets. It’s not necessarily something we see major corporations and institutions using, but there is a clear use-case for retail users and remittances.
Great news for cryptocurrencies
This is ultimately great news for both cryptocurrencies, as well as a move to provide cheaper solutions to the hundreds of millions of people seeking to send remittances to their families abroad efficiently. It’s a positive approach to combating some genuine issues in the world: remittances and poverty.
That being said, there are still some concerns regarding privacy. The Libra Association in Switzerland claims to be independent of Facebook, but there are still a few risks to consider.
“There will be separation of data,” David Marcus, Facebook’s lead blockchain executive and Calibra CEO, stressed to Fortune. “People don’t want their financial data and social data commingled.”
Convenience vs. privacy
In their whitepaper, it is mentioned that Facebook is the provider of the subsidiary, Calibra. Furthermore, in the whitepaper, even though Facebook and Calibra do not interact with each other in the cross-checking of user data, it is mentioned that users have to opt-in to sharing account information and financial data, likely as the default setting on the platform.
There is another concern, however, that involves the amount of power that this association of clear-cut corporate interest would have over international monetary policy. Chris Hughes, Facebook co-founder, has elaborated on some concerns that the Libra Association, together with the corporate partners, could challenge global “monetary control between central banks and individuals.”
If individuals and businesses are incentivized to maintain their savings as libra stablecoin, rather than keeping local currencies (as unstable as they may be), there is a risk of further destabilizing already weakened nation-states.
Ultimately, the initial impression of libra is the potential to move power away from central banks in the developing world. This result is a gravitation of power to multinational corporations, the US Federal Reserve and the European Central Bank. By bundling stronger currencies together to create a single stabilized asset and offering it on popular internet platforms, the ability of nation-states to govern their own monetary policy is threatened.
The size of Facebook (and thereby libra), as well as their track record in terms of data privacy handling, has placed them in the cross-hairs of the regulators. The way that Facebook has approached these issues, for better or for worse, has called for regulators to push back, as there are systems in place that are being drastically undermined by libra.
By Denmark – for the world
Aryze approaches monetary policy with a collaborative spirit.
“We are conforming to the existing regulations as they stand, and in our minds, approaching the issue with caution and due diligence. There are correct procedures for all of these things, and it starts with conversations with the regulators from the top-down,” says Aryze CFO, Morten Nielsen. “You speak to the central bank and you state your intentions to make it clear what you are trying to do. It often comes down to the fact that you want to make it known that you are not a threat to a possibly fragile monetary system.”
Furthermore, building Aryze from Denmark has been a conscious and strategic decision. We found a great product-market fit in Denmark, due to its size, collaborative population, and tech-hungry market. By building on those learnings and adapting our technologic platform to fit a broader, global audience meant that we had a solid foundation for an unbiased, ethical payments platform.
Being in the EU, our data protection policies are in line with the requirements of GDPR. We believe that this will have a large role to play in our success as a global company. Staying true to our Danish roots and keeping the core team here has had a significant impact on the way the platform is being shaped.
Our product: Digital cash
In short, we are creating digital cash – a digitized representation of genuine sovereign money that is stored in a secure, full-reserve banking model. Digital cash operates on a network of trust and is interoperable – enabling seamless integration with other systems. We believe that our approach to regulation and the balance between traditional finance and modern technology gives us a good chance of being successful in the race for the payments of the future.
In conclusion, there is enormous potential for stable cryptocurrencies to be used in the “real world.” It’s possible that in the future, there will be a great many options for consumer and corporate stablecoin products. It is plausible that other tech giants and large corporations will seek to implement stable digital currencies for transactions on their platforms.
There is no “one size fits all” in that different activities place weight on various features. The years to come will be considerably exciting in the sphere of innovative payments, especially when one considers that these platforms will all be interoperable in the future through next-generation applications.
Co-founder and community manager at Aryze
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Aryze.
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