Source: China Business News Original title: "Libra: wealth distribution mechanism of change" Author: Qu Lili
Editor's note: The birth of Libra is receiving high attention and heated discussion from the "traditional" world. The main reason is that its founder, Facebook, has 2.7 billion users and 90 million companies. This volume is enough to give Facebook the power to "destroy the world." As the industry comment said, “Let the fans rejoice and let the critics be on the back, let the traditional financial institutions sit on the needles.”
On June 18, 2019, the Libra white paper was published on its official website. Libra's mission is to create a simple, borderless currency and financial infrastructure for billions of people. Libra is working hard to create a new decentralized blockchain, a low-volatility cryptocurrency and a smart contract platform that opens up new opportunities for financial services innovation.
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The announcement of the Libra white paper directly triggered the hearing of the US Senate and House of Representatives in July. The US Congress even sent a letter to Facebook executives requesting to stop Libra's research and development. Behind all the arguments and doubts, it basically revolves around the US monetary policy and the international status of the US dollar. This allows people to see the inconsistencies between the Libra without borders and the international monetary system of sovereign states.
On the other hand, Libra is an attempt by humans to evolve into a unified global currency. If Libra succeeds, the Libra Association will become the central bank of the digital world, which will overturn the existing global monetary system. And even if it is not successful, Libra's attempt will accumulate experience for the success of a truly global unified digital currency. Therefore, Libra will be destined to become a landmark event in the history of global digital currency development.
Birth: the centralization of the currency link, decentralization of the circulation link
According to the Libra white paper, Libra is a combination of “money” and its corresponding financial infrastructure. It consists of three parts: a secure, scalable and reliable blockchain as the underlying technology architecture; a reserve asset that acts as an intrinsic value; and a Libra association as an independent governance body.
Although the White Paper claims that Libra's mission is to create a simple, borderless currency and financial infrastructure that serves billions of people, it is clear that Libra is simply an exporter of technology and new financial services governance mechanisms. abstract. Therefore, many people visually compare it to "Alipay (domestic payment) + SWIFT (cross-border payment)", which solves the problem of Libra's cognition to a certain extent.
However, cross-border payments are just one of Libra's capabilities . To understand it more deeply, you need to put Libra in different coordinates to understand.
Dr. Yang Jinyan, General Manager of Firecoin Labs, said in an interview with the reporter of China Business News.
“We can only better see its innovations and differences when we compare Libra with French (sovereign or fiat currency), bitcoin and other stable currencies.”
In the view of Dr. Yang Jinyan,
“Libra is based on its own needs. Facebook’s payment problem is different from Alipay and WeChat. The latter’s social and network is mainly composed of single-country users, while Facebook is facing global users. It is not as simple as WeChat and Alipay, and needs to cross different banking systems in different countries. This has extremely high costs and barriers. If Facebook's payment is successful, it will require a very low cost to solve the problem of cross-border payment. And the user structure determines."
In addition, although Libra is built on the distributed ledger of the blockchain, it is not completely decentralized. Instead, it adopts the model of “ centralization of the currency link and decentralization of the circulation link ”. This should be A very important difference with Bitcoin.
As we all know, the violent fluctuations in bitcoin prices and the speed of transfer have limited their role in the payment field. Therefore, Libra was positioned as a “stabilized coin” at the beginning of the design. In order to ensure the stability of the currency value and the true value support, Libra adopts a “mortgage issue” in the issuance method, that is, each time a Libra token is issued, the assets equivalent to the token are deposited in the relevant custodians as value support.
And this equivalent asset is a basket of currencies anchored by Libra when it is issued. Libra's white paper clearly states that these anchored assets will not be gold, "but it will be secured by a series of low-volatility assets (such as cash and government securities provided by a stable and reputable central bank). ". At the hearing, Libra project leader Marcus further stated that half of these anchored assets would be US dollars.
"So, if you look at a coordinate, Libra is not decentralized without bitcoin. The currency of the bitcoin is decentralized by the randomness of the algorithm. Anyone who downloads the bitcoin program can mine. No one knows. Who will dig into the next bitcoin, and the bitcoin will be able to circulate throughout the network. At the same time, Libra is not closed as a legal currency, it is somewhere in between." Yang Jinyan said.
In the Libra system, users get full ownership of Libra. Since the algorithmic book of the blockchain is distributed, there is only one book in the whole network, which is accounted for by the computer nodes of the whole network. There is no administrator, no back door, no tampering, and transparent query. The book itself can prove authenticity and does not require the endorsement of the credit of any central organization.
Yang Jinyan said that
“For example, Tencent’s Q coins can only be transferred to each other in the account of the QQ system, and Alipay’s money cannot be directly linked to WeChat. The transfer between the bank and the bank requires a partnership between the transfer bank. Libra is stable. Once the currency is issued, it can be circulated on the blockchain without any centralization system. Facebook can use Libra to pay in its APP system, and users can also put Libra from the Facebook system and put it on their own. In the digital wallet, or go to another virtual currency exchange. Of course, technically capable users can also develop a new wallet to transfer money."
In this sense, Libra is a new type of cash. After the dealers put the equivalent reserve assets into the designated bank trust, the issued Libra tokens cannot be changed on the centralized book unless they are changed. One day you return the reserve equivalent assets to the Libra Association and the Libra tokens will be destroyed.
It is worth noting that in Libra's design rules, users are not able to obtain interest on the bank account of reserve assets, but they do not limit the chances of people getting interest through lending to Libra.
This means that in the future, Libra's chain can generate Libra-based lending business, as well as a variety of derivatives business, such as token hosting, token asset management, token financing, etc. These businesses will also generate hosting companies, asset management companies, virtual banks and investment and financing institutions in the digital currency world, which can operate globally through websites, apps and DAPPs (decentralized applications). This is the new financial ecology that Libra eventually created.
In Dr. Yang Jinyan's view, this new financial ecology will exist outside the traditional financial industry chain, challenging traditional financial businesses, financial institutions and financial systems, and Libra will eventually sink into the new financial infrastructure and become new. The exporter of technology and the new system. This is also the concern of Libra for traditional financial institutions and regulators.
Innovation: Libra is anchored in a basket of currencies
CITIC Securities Research believes that Libra may not be the terminator, but a starting point for a new era. Although regulators in some countries are not very supportive of Libra, from the perspective of currency history, every monetary innovation is the inevitable result of economic fundamentals. With the expansion of the virtual economy, there is bound to be a kind of Libra may not necessarily be the final result of the monetary settlement unit of the real economy and the virtual economy, but it represents a direction.
Dr. Yang Jinyan also believes that "although Libra is not original in the distribution model, its scale effect is very large. Even if it is not successful, there will be some kind of cryptocurrency in this direction in the future."
So how do you know the direction Libra represents? Where is its innovation?
As we all know, Libra adopts the model of out-of-chain asset mortgage. There are many stable coins in this model. For example, GUSD, USDC, PAX, etc. issued in New York, USA are all stable coins issued by using extra-chain assets. But the difference lies in size and compliance and the type of legal currency that is anchored.
"Several stable coins listed above are anchored in US dollars, while Libra anchors a basket of currencies." Yang Jinyan told reporters.
Yang Jinyan also pointed out that
“Libra's main body of financing is the Libra Association, but the association has adopted a member decision-making system and achieved relative decentralization. At the same time, its reserve assets are scattered, and a distributed asset mortgage model is adopted to ensure the security of reserve assets. This should be said to be the model pioneered by Libra."
Indeed, the previously published white paper described this as “the assets in the Libra Reserve will be held by custodians with global investment grade credit ratings to ensure the security and dispersion of assets.”
At the same time, the white paper states:
“Only the Libra Association can manufacture (mint) and burn (burn) Libra. Libra coins will only be manufactured when authorized dealers invest legal assets to buy Libra coins from the association to fully support the new currency. Only when authorized dealers Libra coins will be destroyed when the association sells Libra coins in exchange for collateral assets. Libra reserves assume the role of 'final buyer' because authorized dealers are always able to sell Libra coins to reserves at a price equal to the value of the basket. These activities of the Libra Association are regulated and governed by the Reserve Management Policy, which can only be changed with the consent of a majority of the members of the Association."
Obviously, this design not only allows Libra to have greater compliance than other stable currencies, but also decentralizes the governance structure. At present, Libra has a total of 29 members, which is 29 nodes. According to the plan, Libra will introduce more than 100 members. According to the published documents, Facebook's absolute power in the Libra Association will end at the end of 2019, after which the power will be Transferred to the Libra Association Board of Directors. In conjunction with the Libra Association's rules, the single member voting rights will be significantly less than 30%, and the Libra Association also stipulates that the same subject cannot join the association through different founders. This will mean a further dispersion of power.
It is also worth noting that no commercial bank has joined the Libra Association. The existing 29 nodes are basically built around Libra's network construction, such as some are good at paying, some have usage scenarios, some are responsible for transactions, and some provide technology. This also hints at the status of commercial banks in the new financial ecosystem created by Libra and its imminent impact.
Of course, Libra's most important innovations are also derived from its application scenarios. First, Libra has an innate advantage in implementing cross-border transfer applications. Facebook has 2.7 billion users worldwide, and its instant messaging software Messenger and Whatsapp have high usage rates around the world.
Moreover, there is no doubt that when the legal isolation barrier is not enough to withstand, the competition between different stable currencies will evolve into the competition of the application scenario. Whoever gets more users, who has more rich application scenarios, and who cultivates more user behavior habits will get more opportunities.
In this regard, as Marcus said,
"90 million companies on the Facebook platform. If Libra succeeds, Facebook will first get more business opportunities from its app ecosystem. More business means ads will be more effective, advertisers will buy more ads. To develop their business."
In addition, Marcus believes that "if we use the Calibra wallet to win people's trust over time, we will start to provide more financial services and bring other sources of income to the company."
Competition: market innovation and national competition
If you introduce the elements of competition between countries, you can see the enormous invisible power behind Libra.
Dr. Yang Jinyan said that
"The current competition in the innovation market is more of a competition that is reflected in the institutional advantages. For example, in Russia and Vietnam, it is impossible to issue a legal stable currency because the legal system is not perfect. But the United States is New York. The state now has a relatively complete system, which has spawned several legally compliant stable coins. This has attracted the attention of global funds and entrepreneurs, and the institutional advantages have emerged."
Similarly, Singapore is more typical. As is known to all, the United States legally divides virtual currency into two categories, one is a securities-type token, which needs to be issued in accordance with the provisions of the Securities Law; the other is a practical token, which has fewer legal restrictions, but cannot be issued. Practical tokens for financing. In Singapore, the definition of practical tokens is more broad, and it is clear that it can be financed by issuing practical tokens.
"Behind the policy differences, it is reflected in the fierce competition between the two countries in the process of competing for blockchain and new financial centers." Yang Jinyan said.
The coin industry insider Li Ming (a pseudonym) also told reporters that
"The original legal barriers such as foreign exchange control can block a foreign currency from the country, but for a stable currency such as Libra, it is technically unstoppable, and it is bound to be globally circulated. The future of cryptocurrency and legal currency The competition between the two is not the competition, but the competition is more powerful. It is more suitable for users, more convenient to use, more stable in value, better to use, and those countries that are more prepared and more advantageous in the system. Providing better institutional support, it will gain more market share and attract more global funds and entrepreneurs."
At the same time, it should be noted that the blockchain is a very international industry. Considering the global positioning of Facebook, this will be Libra's greatest advantage. Of course, this will also be the United States to build competition in the digital currency era. An important opportunity for advantage.
“Although the two hearings will give Libra various challenges and disagreements, from another perspective, it brings Libra's global influence and opportunities to the world. And these different opinions are behind, but It is a normal procedure in the US policy introduction model. When the market develops to a certain extent and needs policy or legislative promotion, it is necessary to take the parliamentary hearing and then make decisions with the participation of various forces. The ultimate goal is to build Its institutional advantage in the innovation market." Li Ming said.
Indeed, for Libra's two hearings, the focus of the game between the parties is whether Libra is included in the US regulatory system and whether it is subject to the traditional financial order. The biggest concern for regulators is whether Libra will cause the centrality of the dollar to fall. This largely reflects the problem between market innovation and national competition.
In Yang Jinyan’s view, this is an unavoidable problem.
“Although global policies are not very clear, once Libra is put on the market, development will be very rapid. It is not very difficult to develop relevant financial applications in Libra's underlying blockchain, such as the development of applications such as lending and fund raising. And the application will be very fast. That is to say, it may take only one to two years, and the various financial products on the Libra chain will be very rich, which will bring huge challenges to the competitors."
In the global impact Libra is launching, China can't stay out of it. Whether it is the central bank's digital currency research department, brokerage, macroeconomic research department, or cryptocurrency market practitioners, Libra maintains a high degree. attention.
Observation: Libra must first meet the regulatory challenges
The emergence of Libra, while raising people's thinking about the globalization of digital currency, is also facing challenges from all sides.
Professor Tian Xuan, deputy dean of Tsinghua Wudaokou Finance College and director of the Center for Entrepreneurship Finance and Economic Growth, told the China Business News reporter.
"The currencies issued by countries in the world are basically credit currencies. Libra is supported by bank deposits or short-term government bond mortgages, so it is not a credit currency like US dollars and RMB that we usually understand. Libra wants to become a credit currency. Gaining market trust, and thus having a value storage function, and ultimately as credit, can not be achieved overnight. From this perspective, Libra wants to become a new currency and build a wide range of financial formats around it. It is not realistic in the short term and still has a long way to go. ""
In the view of Professor Tian Xuan,
“The biggest problem facing the development of Libra is the resistance from regulation. For this new format, there are still many disputes about who will supervise and supervise which areas. The financial regulators of various countries are mainly worried about anti-money laundering. And anti-terrorism financing, privacy protection of transaction data, requirements for fiat reserve custodians behind Libra, and redemption requirements between assets and digital currency exchange. As long as the supervision of the above risk points is not clear, Libra security The controversy will continue and the market will not be able to give Libra full trust."
Although Dr. Yang Jinyan is optimistic about Libra, he also mentioned the three major challenges that Libra must face.
“The first is the regulatory challenge. Stabilizing the currency itself needs to regulate the anti-money laundering, counter-terrorism financing rules and the regulation of the account. At the same time, if the account is implemented with real-name system, it will involve the protection of user privacy. Secondly, technical security. The challenge, although the blockchain technology is relatively safe, but also has to guard against attacks by higher-level hackers. The third is the construction of business models, which will involve the subversion and adjustment of the Internet economic landscape."
However, technical experts in the industry believe that
"Considering the programmability of the Libra network, if the user implements the real-name system on the chain, then the anti-money laundering and counter-terrorism financing rules can be written on the chain. At the same time, by marking the tokens, the flow of funds can be traced. All regulatory requirements can be written on the chain, which is the regulatory chain."
In this regard, Libra project leader Marcus also said that
“The cooperation with regulators is to ensure that Libra can help solve the problems that the existing financial system has been fighting, especially money laundering, terrorist financing, etc. Fundamentally, we believe the network can help to trade more cash. — An area where a large number of illegal activities have occurred — moving to a digital network will be an important opportunity to improve the efficiency of financial crime monitoring and enforcement."
However, because Libra inevitably weakens and cracks down on commercial banks, especially on the macroeconomic and monetary policies of various countries, it has to face resistance, opposition or cautious treatment from various countries.
Sheng Songcheng, former director of the Investigation and Statistics Department of the People's Bank of China, said that
"In the face of the emergence of Libra, (we) should absorb the new technology and should further study how the new technology affects currency issuance, currency circulation, currency stability and financial stability, and carefully consider its potential impact. The interaction of technology and institutions."
In the eyes of researchers such as Sheng Songcheng,
“Although Libra is linked to a basket of French currency, it seems to solve the problem of large price fluctuations, but it still cannot change its nature of not being a currency. One of the core issues is that Libra still has no national credit support, no central adjustment mechanism, and its currency value. It is doubtful to get stability."
Li Yang, member of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, also pointed out that
“Libra's currency exists in two systems, one similar to SDR, which weights certain currencies with a certain weight to form an asset package. The other is to reinvest the funds it raises in a series of traditionally central Among the high liquid assets invested by banks, this is similar to money market funds. In daily operations, whether it is based on a basket of currencies or based on money market funds, this is in conflict. This is the direction Libra still needs to explore. ”
In fact, more and more financial industry people are beginning to pay attention to the impact of Libra on commercial banks, the sovereign currency of a country and its monetary policy, and economic cycle adjustment, including Libra’s distribution mechanism and its new financial format. Possible redemption risk.
For example, once Libra is used for mortgages, the difference in the amount of money supplied (Libra+Libra deposits) and the size of the reserve assets and the resulting redemption may be a run on and bankruptcy.