Velvet Exchange study: Libra has the potential to drive global adoption – as long as it can withstand the regulatory pressure
Back in May, Facebook first announced it would launch its own crypto asset called Libra. How will it change the blockchain industry? Should we view Libra as a force for the good? In this article, a group of analysts from Velvet Exchange present their research findings.
Meet Libra: stable, centralized, and pegged to USD
The Velvet Exchange team conducted a study of all available information on Libra. The main insight is rather promising: the new coin could become a major driver of cryptocurrency adoption among social media users. However, we can’t discount the risk that the US regulator will interfere and create serious trouble for the project.
One thing that must be clarified from the start is that Libra is not a truly decentralized coin independent from any central authority. Instead, it will be controlled by a committee of sorts – and it definitely won’t be open-source or subject to forks. The analysts at Velvet Exchange found out that Libra is designed as a stablecoin, with its exchange rate tightly linked to the prices of USD, EUR, GPB, and JPY, plus some low-risk securities. Will CNY be added to the basket? So far Facebook execs stated they don’t plan to add the yuan, but this might change if the current trade war ends after the US presidential elections.
Who will control Libra?
Contrary to many people’s fears, Facebook won’t run the show. Rather, the control will be given to a special committee of institutional investors, known as the Libra Association. There are 27 companies on the commitiee so far, each of which has already invested 10 million dollars in the platform. Thus, Facebook will have just one vote out of many.
The emission mechanism will follow the standard procedure for stablecoins. For every $1 that someone spends on buying Libra, one token will be automatically created; the $1 will be placed in reserve. A user can also sell their Libra back to the platform and receive fiat money in return, burning the tokens in the process.
Like most Facebook initiatives, Libra is likely to generate substantial revenue. Most of it will be allocated to the users (companies) that hold the project’s investment tokens. The report by Velvet Exchange specifies that these node owners will also act as key blockchain node operators.
Will Libra even happen?
In July, the project founders, including Mark Zuckerberg, received a letter from the US Congress, telling them to freeze their work on the platform. Facebook COO Sheryl Sandberg will have to testify in Congress regarding Libra on October 29. Next, the authorities might request a testimony from Zuckerberg himself.
Some of the Libra Association members are clearly worried. In fact, PayPal has just announced that it’s pulling out of the project. Others might follow: there are indications that Visa and Mastercard are having doubts, too.
If Libra does go ahead, it will become the key internal currency across Facebook, Messenger, and Whatsapp. There is already a subsidiary, Calibra, working on a blockchain wallet, which will be integrated with the social media platforms. Here is how the head of Velvet Exchange research team explains the motivation behind it: “Across Asia, people already use in-app payment for just about anything – but they still use their local currencies. Facebook wants to build on that experience and make its payment system independent from any national banking system or the government. Plus, Facebook and Instagram do a $50 billion turnover in advertising – and Libra could fuel that.”
Adoption forecast and upcoming listing on Velvet Exchange
Average users are still very cautious about cryptocurrencies – they seem them as unsafe, unstable, and complex. A cryptocoin by Facebook can change all that. It will have the trust of 2.4 billion users behind it, and its applications will be very clear. You’ll be able to order food or buy clothes on Instagram with Libra tokens – or send a quick transfer on Whatsapp. Users will finally see that transacting in crypto can be just as easy as in fiat – easier, in fact, when it comes to cross-border payments.
Another important consideration is that Facebook will surely make Libra as legally compliant as possible. It will have all the necessary licenses and registrations, becoming the first fully official crypto. This will make it a magnet for those institutional investors who have long wanted to include digital assets in their portfolios but couldn’t handle the legal risks.
Will Libra become the no.1 cryptocurrency, replacing Bitcoin? Probably not – BTC is too far ahead for anyone to catch up. But it could be a serious contender for the no.2 position. Velvet Exchange will be among the first crypto exchanges to list Libra as soon as it comes out. The inflow of fresh institutional liquidity will not only push Libra’s price up – it will generate an upward trend for other cryptocurrencies, too. Many more private investors will enter the market, including those who are looking for a simple way to send money abroad.
This way, the crypto market will finally achieve what everyone has been hoping for. People will start using cryptocurrency as money – not just a speculative investment asset. Without it, mass adoption is impossible.
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