When Facebook first announced that it was creating its own cryptocurrency, called Libra, regulators and politicians promptly began to freak out. But Facebook isn’t stupid. It knew that nobody would trust it to run a cryptocurrency. Consumers wouldn’t use it. Regulators wouldn’t approve it. And politicians would block or ban it. So Facebook decided to give up control of Libra and get by with a little help from some friends.
Facebook and 27 others are now members of the Libra Association. The Libra Association is the Geneva-based nonprofit that’s tasked with governing Facebook’s new cryptocurrency. Each member has one vote. So Facebook effectively controls just two votes – its own and Calibra’s (the Facebook subsidiary building Libra’s wallet).
The scope and breadth of the organizations Facebook recruited to govern Libra are remarkable. Here’s a breakdown by sector:
- Payments: Mastercard, Visa, PayPal, PayU and Stripe
- Technology/marketplaces: Facebook, Calibra, Uber, Lyft, eBay, Spotify, Booking Holdings, Farfetch and Mercado Pago
- Telecommunications: Vodafone and Iliad
- Blockchain: Coinbase, Xapo, Anchorage and Bison Trails
- Venture capital (VC) firms: Andreessen Horowitz, Union Square Ventures, Thrive Capital, Ribbit Capital and Breakthrough Initiatives
- Nonprofits/academics: Kiva, Creative Destruction Lab, Women’s World Banking and Mercy Corps.
The members of the Libra Association will run the nodes that validate Libra transactions. Joining the association requires a $10 million investment.
Here’s how the association views its mission:
The association’s role is to coordinate among the validator nodes the efforts to develop and secure the network and to promote their joint vision of financial inclusion. The two main areas of coordination and governance are 1) technical: drive toward alignment among the validator nodes and open-source community around the network’s technical roadmap; and 2) financial: manage the reserve and allocate funds to social-impact causes.
In these early years of the Libra network, there are additional roles that need to be performed by the association: the recruiting of Founding Members to serve as validator nodes; the raising of funds from the members as well as other investors through the sale of Libra Investment Tokens (a token that grants rights to a share of the future interest accumulated in the Libra Reserve); the design and implementation of incentive programs, including the distribution of such incentives to Founding Members; and the distribution of dividends to Libra Investment Token investors. As the Libra network grows and matures into a fully permissionless blockchain in which anyone can serve as a node, these roles may no longer be required.
More simply put, the association is in charge of securely validating transactions and operating Libra’s reserve, which ensures every Libra is fully backed by a basket of bank deposits and short-term government securities tied to currencies like the dollar, pound, euro, Swiss franc and yen. That’s what keeps Libra’s value stable.
Calibra will be tasked with some of the heavier lifting in terms of driving adoption. It will integrate its Libra wallet with Facebook (2.38 billion monthly active users, or MAUs), WhatsApp (1.5 billion MAUs) and Messenger (1.3 billion MAUs), giving Libra a massive reach. Calibra will also likely work to integrate its wallet with other user bases and merchants.
But it’s the presence of Mastercard, Visa, PayPal, Stripe, Uber, Lyft, eBay, Spotify and the VC firms that really give Libra juice.
The payment companies are worried about crypto disrupting their business. So they want to control the disruption – or even disrupt themselves – before their business disappears.
The automotive industry is doing this right now. Between Uber, Lyft, autonomous vehicles, car subscription services and demographic-based behavioral changes, the car industry is looking at a future where fewer and fewer people are buying and driving their own cars. So how are they adapting? By leaning into the change and trying to own the autonomous car space.
Microsoft did the same thing when the web browser first came out in the 1990s. In an effort to protect its Windows business, it leaned into the internet and released its own web browser.
The payment companies also want access to the 1.7 million unbanked people throughout the world. If they can capture a piece of that market and bring it into the digital economy, it’s a big win for them.
Meanwhile Uber, Lyft, eBay and Spotify are all international businesses that are looking for simpler and cheaper ways to conduct digital transactions both within a single market and across borders.
In fact, the best lens to view Libra through might be as a global mobile currency that requires exchanges, payment providers, merchants and consumers to be on similar pages.
In order to succeed, Facebook can’t control it all. In fact, it can’t even manage it all. It can will it into existence. It can give it a platform to launch on. But in order to truly succeed, it needs partners. It needs help.
Kathryn Haun, general partner at Andreessen Horowitz, said all Libra Association members will have a say in determining the direction of the digital currency.
“One of the key factors in our decision to join was that we would in fact have – and all members would have – an equal vote,” Haun said.
So don’t pay attention to the phony political outrage over Facebook’s Libra launch. It’s okay to be skeptical of Facebook’s ability to develop and deliver the goods. (Remember Facebook credits?) It’s okay to worry about privacy issues concerning Libra. And it’s okay to be wary of Facebook offering banking services in the future. That’s fair and legitimate. But Facebook is not taking over the world or replacing fiat money with Libra.
By ceding control of Libra to its partners, Facebook recruited the companies needed to make Libra a reality. And it made the whole enterprise about increasing access to the digital economy and creating a better digital economy experience for the world – especially the world’s unbanked. That’s a worthy and ambitious business goal. And a very smart play.
Good investing,
Vin Narayanan
Senior Managing Editor, First Stage Investor