Velvet Exchange: Facebook’s Libra digital coin aims to massively increase crypto adoption
Facebook-led Libra Association has finally announced details of its upcoming cryptocurrency project, Libra. The analytical team of Velvet Exchange has conducted its own research into Libra to understand what this new asset can mean for the industry.
Can a centralized stablecoin become the crypto of the future?
The key takeaway of the study carried out by Velvet Exchange is that that Libra may very well act as a major catalyst for the crypto sector, promoting massive adoption of digital payments and cross-border remittance tools. At the same time, potential interference from the authorities (especially in the US) can become a major negative factor.
The social media giant isn’t cooking up any “real crypto” in the strict sense of a decentralized, community-run asset. Quite the contrary: the digital currency proposed by Facebook will be heavily centralized and will employ corporation-type management style. According to the Velvet Exchange researchers, the digital asset Facebook intends to create will act as a stablecoin pegged to a basket of several low-risk currencies and state bonds. These include the US dollar (which will comprise over 50% of Libra reserves), euro, British pound, Japanese yen, and Singapore dollar. Other currencies might be added down the line. Interestingly, there seems to be no plane to add Chinese yuan to the mix.
Operation and governance
Whenever someone buys one dollar-worth of Libra, one new unit of the cryptocurrency will be minted, and the same amount in hard currency will be placed in reserve. By contrast, when a Libra holder decided to cash out 1 USD worth of Libra, $1 in fiat will be paid out to them, while 1 Libra will be burned.
The main body of the reserve will act as a collateral for the basic currency, Libra, and most of the generated income will be distributed among the holders of Libra Investment Tokens, who will at the same time act as node holders for the Libra blockchain. The the larger the amount of fiat in the reserve, the more investment dividends and the higher ROI it will generate.
The new currency will run on a specially created Libra blockchain and managed by the Libra Association – a group comprised of 28 inaugural institutional members. All the members are large and reputable corporations and organizations represented in many countries and sectors. It is reported that each of the 28 members has already contributed $10 million to the Libra initiative. The report prepared by Velvet Exchange specifically notes that Facebook won’t have full control over the project. Rather, each member will have one vote. Of course, this won’t make Libra decentralized, but at least it will prevent Facebook from becoming a monopolistic power on the crypto market.
Planned uses and regulatory woes
Facebook plans to use Libra as the main means of payment in its advertising machine, which exceeds $50 billion a year. The chief analyst of Velvet Exchange explains, “Facebook execs have clearly studied the example of WeChat. They have seen what a tremendous addition in-app payments can be to a social network. In China, people pay for everything with WeChat Pay – from pizza to insurance. Libra will allow to do the same on WhatsApp, Messenger and Instagram – with the added advantage of not being tied to a specific currency.”
Facebook has already created a new subsidiary called Calibra. The first product Calibra plans to introduce is be a digital wallet for storing Libra. The wallet will be available in Messenger and WhatsApp, as well as in the form of a stand-alone app. The launch is scheduled for 2020 – as long as the regulator gives the project a green light.
On July 2, US Congress wrote to Mark Zuckerberg, Sheryl Sandberg, and the CEO of Calibra, David Marcus, requesting a halt to the development of Libra. Thus, Facebook’s implementation plans are on hold for the time being. The most serious risk is that some of the association’s inaugural members might get frightened enough to bail out. At the same time, we can assume that potential regulatory hurdles were discussed behind the scenes before Facebook made any public announcements, and the members are ready to face the authorities.
Prospects and planned listing on Velvet Exchange
With Facebook’s 2.4bn users, the new tool can indeed revolutionize people’s perception of digital currencies. Retail users over the globe will start thinking of money and payment as of something much less related to states and central banks and will get accustomed to global payments nominated in independent international units, not national ones. This will radically boost what crypto enthusiasts kept talking about for years: adoption of digital currencies.
Libra probably won’t overtake Bitcoin in market capitalization, but it might very well take the second spot. All the major crypto exchanges will likely list Libra, resulting in a rapid inflow of liquidity. Velvet Exchange has already made plans to have the new token listed immediately upon its release. One can expect Libra to be fully compliant and more “official” than any other crypto. Therefore, it will attract even those cautious investors who previously hesitated to enter the market. Moreover, Libra can become a legal investment opportunity in those countries where cryptocurrency circulation is banned or limited.
The liquidity spike generated by Libra will create a bigger potential demand for new altcoins and existing crypto assets. Millions of new users will be attracted to the market, most of them regular retail investors and daily remittance users. Finally, a new mindset will develop: non-government-issued currencies won’t seem like an exotic and potentially illegal speculative tool, but rather as a completely standard means of payment.
Velvet Exchange is a centralized platform for trading digital financial assets. We don’t claim to provide a radically new trading format – what we do is integrate the best solutions available on the market.