Facebook will testify before Congress on Tuesday, and the company's cryptocurrency project still faces some key issues before Marcus (the head of the Facebook blockchain division) travels to Washington.
Facebook recently announced Libra plans with dozens of major partners such as Visa, MasterCard, PayPal, Uber, eBay and Vodafone, which has plunged the cryptocurrency field into a "one" Big chaos." The social media company hopes the project will serve billions of people around the world who don't have a bank account.
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Despite this, Libra's ambitions and structure have shocked legislators and regulators around the world. Many people worry that it may pose a risk to the global financial system or a security that requires regulation.
Former PayPal executive and head of Facebook's cryptocurrency subsidiary Calibra, David Marcus, will answer the questions at the Senate and House hearings this week and may answer more questions. But we are already very clear about what they want to know.
Is Libra more like a currency ETF?
A report in The Wall Street Journal confirmed the speculation that the Libra cryptocurrency structure and its regulatory approach are currently under review by the US Securities and Exchange Commission (SEC). Informed sources told the Wall Street Journal that regulators are investigating whether Libra will be classified as an exchange-traded fund (ETF).
Indeed, Jin Brito, executive director of Coin Center, and Kristin Smith of the Blockchain Association, said Congressional staff are also studying whether Libra meets the definition of securities, stock derivatives or ETFs. According to a white paper published by Facebook, Libra will be supported by a basket of currencies and other securities. Libra's reserves will be managed by a consortium called the Libra Association, and each member will be a verification node operator and will receive a certain percentage of returns.
"It sounds like a fund. I don't know which kind of fund, maybe a mutual fund. But this is a problem that Facebook must solve on Tuesday."
“If it is a mutual fund, how does it work in monetary terms? Considering the taxation factor, how to buy things with mutual fund stocks?”
In fact, Dave Nadig, general manager of ETF.com, said in an article on June 25 that Libra is the most interesting ETF application ever. Nadig noted that one of the Libra white papers mentions that Libra users will interact with “authorized agents” who will be involved in large Libra and legal currency transactions. Users using this currency must redeem their tokens through an agent.
"It sounds a lot like the process of creating and redeeming an ETF."
Brito said that by Tuesday, Facebook may first explain whether its cryptocurrency structure is a security.
"Smart legal arguments may work, but when the president, the Fed chairman, and the majority of the members of the Judiciary Committee in Congress are negative about your views, it won't work."
This issue was also discussed in a memo issued to members of the House Financial Services Committee last Friday. California Democratic Party member Maxine Waters is the chairman of the committee.
The memo mentions:
“If an asset is an investment in the company and is not exempt from registration, it must comply with the minimum conflict of interest provisions, including regular disclosure of its financial status and investment policies to investors. Like ETFs, Libra can also act as an authorized agent. Redeemed and traded on the open market."
This passage is consistent with Brito's point of view.
There is also concern about whether Libra or the Libra Association is eligible to become a bank under current law. This is the question raised by President Donald Trump on Twitter last week. He said on Twitter that Facebook will have to "apply for a new banking license."
The memo also states:
“There are several uncertainties regarding the development of Libra, so it is impossible to confirm the status of its banks or non-bank institutions based on the Financial Reform Act.”
These uncertainties include: how to ensure the safety of Libra; how to prevent or respond to drastic changes in exchange rates; whether authorized sellers should be considered brokers.
Facebook's personal privacy protection measures
The disgraceful history of Facebook's protection of user data is the concern of most lawmakers about their cryptocurrency. Last week, it was reported that the US Federal Trade Commission imposed a $5 billion fine on Facebook for its violation of user data and privacy. Many people have questioned that the company is unable to protect the privacy of its 2.5 billion users, and now how to trust the large-scale new monetary system it created.
Facebook and its small but powerful supporters will be supported by the Libra Association, saying that the social media giant's power over Libra will be checked and balanced to prevent participants from acting unilaterally. Smith said that Congress is understandable.
"They know there is an alliance behind them."
Smith held dozens of meetings last week with the Congressional Office.
The problem is that most people in Congress are not touched by this.
North Carolina MP Ted Budd said:
"No one would think 'Wow, Uber is also involved, good I agree.' This has not brought much change."
The above memo has already mentioned concerns about privacy.
"Facebook used to have problems protecting user information. For example, political consulting firm Cambridge Analytica has private data for more than 50 million Facebook users, which is used to influence voting behavior."
Is it wrong to be based in Geneva?
Smith said that despite the big concerns, Facebook's privacy issues and Libra's ETF may not be the biggest concern.
“The problem is that the headquarters of the Libra Association is in Switzerland.”
In fact, this is also Budd's concern, he does not like Libra to bring "innovation outside the United States."
Smith said that there are concerns that this will limit US supervision of the project.
For Facebook and Marcus, Libra's fate is likely to be decided in a day.