Editor's Note: This article comes fromGu Yanxi, published with permission.
Editor's Note: This article comes from
Gu Yanxi, published with permission.Shortly after the Libra news was released on June 18, I analyzed it in a research analysis (
Libra Project Research Analysis Report
) pointed out that a huge risk of this project is project management risk. It tries to complete a project with a huge scope involving multiple aspects in a very short period of time, so this project will definitely encounter very large risks, and this project therefore has a very high possibility of failure. This article further explores the various risk factors of Libra.
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Facebook has been unanimously condemned by the society because of data privacy issues. It had to pay a $5 billion fine for this. Facebook does not have a good social image in American society, and is not considered a responsible operator of a social network. In fact, in American society, there are very strong anti-Facebook forces.
Among fans of blockchain and encrypted digital assets, Facebook definitely does not appear in a positive image. It had previously banned advertisements for cryptocurrencies from Facebook's network for a long time. Such behavior is consistent with its overall regulatory review behavior. But such behavior is incompatible with the pursuit of encrypted digital asset enthusiasts. Therefore, the community of encrypted digital asset enthusiasts has a very strong critical attitude towards Facebook. In this respect, Jack Dorsey's Twitter stands in stark contrast. In fact, Twitter is a social network for encrypted digital asset enthusiasts. Now that Facebook is taking the lead in promoting such a digital stable currency project, it will naturally not get the support of encrypted digital asset enthusiasts.
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2. Huge resistance to regulation
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3. Unprofitable seigniorage
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4. It is difficult to coordinate the needs of various fiat currency issuers
Libra will accept fiat currency as collateral, and its price will be marked against a basket of fiat currencies. Which fiat currencies are accepted as collateral, which fiat currencies are included in the target basket of fiat currencies, and the proportion of each fiat currency will affect the influence of existing fiat currencies in the market. It is precisely because of this factor that it is so important that even when the white paper was released, these factors were not finalized and therefore could not be published. Such uncertainty naturally causes the world's major currency issuers to worry and feel uneasy. Therefore, the position of some financial regulators is not favorable for this project. Even after Marcus testified before the U.S. Congress that the basket would consist of 50 percent U.S. dollars as well as euros, pounds and yen. But such a message would certainly not please the world's major currency issuers. This project will definitely go through a long period of communication and coordination with the issuers of major currencies. Whether these institutions are satisfied with the final result directly determines whether Libra stablecoins can operate in these economic regions.
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5. The huge number of Facebook users failed to produce the desired effect
The Facebook social network has 2.7 billion registered users in many countries around the world. On the surface, this will provide a large number of potential users for the Libra stable currency. However, if further analysis is done, it will be found that such users may not be able to provide a large number of potential users for stablecoins.
In terms of the nature of users, Facebook users are more of a family nature, rather than young people who can take the lead in trying new things. To promote the use of digital stablecoins in such a user group, the speed of advancement will definitely be very slow.
According to the white paper of this project, the main target of this stable currency service is the 1.7 billion users around the world who currently do not receive financial services. However, in this user group of 1.7 billion people, the number of users who can use the Internet and are Facebook users is greatly reduced. If the region of the user who can meet the above conditions accepts the circulation and use of the stable currency, then the local user of the stable currency needs to have a financial institution to help realize the exchange between Libra and the local legal currency. If some users are unable to open an account with a financial institution, this again excludes some potential users. Due to the network effect of currency, a user's ecology, only when all the transaction parties around him use this stable currency, can he really use this stable currency in his daily economic activities.
Among major economies, even if Libra can operate in these areas, it will be difficult for it to serve groups in this area that currently do not have access to financial services. The lack of financial services for these users is for reasons other than the currency and the clearing network, and the Libra stablecoin and the clearing network will not help solve such problems.
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6. The diversity of association members will hinder the application and promotion of LibraFirst of all, the current members of the association have mixed commitment to this project. Some members directly stated to the media that the agreement they signed with this association was intentional and not binding. This shows that these members adopted a wait-and-see attitude to join the association. In addition, according to media reports, some members have not invested the promised 10 million US dollars so far. Therefore, the association still needs to do a lot of work to unite its members and enhance their commitment. This will be a long-term game process. A look at the current membership of the Eurozone and the UK's current exit from the European Union will show how risky such an organization is and will be in this regard.A huge shortcoming of the current members of this association is the concentration of parties with completely opposite interests in one association. Moreover, the current interests of some of these members are likely to be impacted by the development of this project, so the participation of these members will definitely hinder the advancement of this project. The most typical representatives in this regard are Visa and Mastercard. The two companies provide clearing networks for credit card transactions worldwide. Various services that offer credit card payments charge the recipient a fee of 2% to 3%. Visa and Mastercard are the biggest beneficiaries of this business. Libra, on the other hand, is to provide a point-to-point clearing and settlement network that supports payments on a global scale. This will directly impact the existing business of Visa and Mastercard. Therefore, it is hard to believe that these two companies will fully support the promotion and use of Libra. They will definitely prompt the association to make decisions that are beneficial to them in order to safeguard their own interests. Although these two companies are two of the more than 100 members in the future, they will still exercise their power to influence the Libra Association to make decisions in their favor. Most of the other members are users of the currency and clearing network, so they must hope that the transaction cost is as low as possible. Even third-party payment service providers hope to increase their profits by reducing the cost of clearing network. Therefore, disputes among members within the association will be a problem that the association needs to face for a long time.
The consensus mechanism supported by blockchain technology is most suitable for the cooperation between institutions with common interests but mutual distrust (
