Details of Facebook’s cryptocurrency, Libra token, revealed Tuesday after months of secrecy, could have a significant impact on the global financial industry, said Dan Schatt, co-founder, and president of Cred, the leading platform for crypto lending and borrowing.
“Mass cryptocurrency acceptance requires a significant amount of resources to educate merchants, customers, investors, and regulators,” said Schatt, a frequent industry speaker and author. “The Libra project that Facebook announced will help with that education, and Bitcoin and the broader crypto community will benefit.”
In a much-anticipated move, Facebook released a white paper Tuesday detailing its plans to become a major fintech player early next year. The social media network giant’s cryptocurrency, to be called Libra, will be used across its various platforms, including Messenger and WhatsApp, and in a standalone app called Calibra. The social network’s almost 2.4 billion monthly active users will be able to send Libra to each other as well as use it to make purchases at grocery stores and other merchants for “low to no” fees.
As written in the whitepaper, Libra, a stablecoin backed by various fiat currencies, consists of three elements: It will be built on a secure, scalable and reliable blockchain; backed by reserve assets; and will be governed by an independent Libra Association, headquartered in Geneva, Switzerland.
“Now is the time to create a new kind of digital currency built on the foundation of blockchain technology,” Facebook said in the white paper. “The mission for Libra is a simple global currency and financial infrastructure that empowers billions of people.”
The currency could take a bite out of the bottom line of credit card companies, which charge merchants as much as 2.5 percent on purchases. It could also impact money transfer companies that immigrants use to send funds to loved ones back home.
“All over the world, people with less money pay more for financial services. Hard-earned income is eroded by fees, from remittances and wire costs to overdraft and ATM charges,” Facebook said. “Payday loans can charge annualized interest rates of 400 percent or more, and finance charges can be as high as $30 just to borrow $100.”
Ahead of the release of the white paper, the project was eagerly anticipated on Wall Street. Much of the assessment was positive.
“We believe this is a major initiative for Facebook, and one that has the potential of putting the company front and center in areas beyond advertising, including commerce and financial services, materially expanding its TAM and growth prospects,” an analyst at Sun Trust told CNBC. “It positions the company as one of the key actors at the center of the cryptocurrency development, and the main architect of the future of this emerging and important trend. While cryptocurrencies have existed for several years now, no other company could bring the combination of user scale, brand support and balance sheet, which Facebook can in our opinion.”
Facebook has received investments of $10 million each from myriad investors to participate as a node, ranging from non-profit financial organizations to major companies, including Visa, Mastercard, Paypal, Uber, Women’s World Banking and Mercy Corps. It announced that almost 30 have signed on so far. The companies will join Facebook in forming a consortium called the Libra Association to govern how the currency is managed. Unlike many other tokens in the decentralized finance industry, the Libra will be supported by a basket of government-issued currencies to minimize the turbulence common among cryptocurrencies.
The Libra’s development has been shrouded in secrecy for months but rumors of an imminent announcement picked up steam in recent weeks. On Thursday, The Wall Street Journal revealed the names of some of the investors that have joined the project. Facebook is well short of the $1 billion it hopes to raise before launching the Libra next year.
Cred’s Schatt, a former Paypal executive, said the interest that investors have expressed in the project indicates that Facebook should meet its $1 billion investment goal or come close to it.
“Cred is considering offering support of the Libra token through its borrowing and lending services,” Schatt said.
At one point, rumors swirled that Cred was connected to the Facebook effort because the online powerhouse’s token will be called Libra and Cred has investors and advisors connected to the project. Cred was previously known as Libra Credit, a decentralized lending platform and protocol built on the Ethereum blockchain and Cred’s token symbol is LBA, the Lending Borrowing Asset Token. Cred officials say they were monitoring industry developments but the company is not connected to the Facebook Libra project at this time.
Facebook has hired a team of e-commerce veterans and former government officials to bring Libra to market. The 100-member team is led by David Marcus, former head of messaging products at Facebook and former president of PayPal, who worked with Cred’s Schatt, who was the General Manager of Financial Innovations at the time. The team also includes Nick Clegg, former British Deputy Prime Minister, who was hired last year as head of global policy and communications. Also on the team are former PayPal executives Christina Smedley and Tomer Barel.