Babbitt column 丨 Gu Yanxi: Libra's impact on the global financial industry from three basic judgments

Originally published in: Dongcai Magazine

Abstract: Analyzing the impact of Libra on the financial industry is actually analyzing the impact of blockchain technology on the financial industry. For practitioners in the financial industry, only by recognizing the impact of blockchain technology in all aspects, can they make correct decisions and grasp the huge opportunities brought by blockchain technology. The author puts forward three basic judgments on Libra: Libra is actually a development and application of blockchain technology. Libra is still in the process of continuous evolution and development, and Libra will definitely be pushed to the market eventually. Based on this judgment, the essence of the Libra project is to allow value to circulate freely on a global basis on the basis of blockchain technology. The first thing that Libra obtains financial services is not the 1.7 billion that have not yet received financial services globally. Users, but users who conduct economic activities across borders. Libra will have a major impact on the currency, clearing network, commercial banks, central banks, and securities industries. The inspiration from Libra is that blockchain projects must be legal and compliant. The financial industry needs to grasp the opportunities brought by blockchain technology. The success and failure of blockchain projects are determined by factors other than blockchain technology.

On June 18, 2019, the Libra Association registered in Switzerland released the Libra Project White Paper [1 ] . Today, six months after Libra's official announcement, Libra has caused a huge shock in the financial industry worldwide. There has never been a project planned by a private commercial institution in the history that will cause such a fierce response from major global financial regulators. Therefore, it is indeed necessary to conduct an in-depth analysis of the Libra project to understand what impact Libra will have on the global financial industry and its inspiration .

First, the three basic judgments of Libra

Before analyzing the Libra project, we first need to make clear three basic judgments about Libra. First, the essence of Libra is the development and application of blockchain technology. Libra just pushed the development and application of blockchain technology to an unprecedented height. The current analysis of Libra by the industry and academia is actually an analysis of blockchain technology and encrypted digital assets. Libra is just an application of the development of blockchain technology. If it is not Libra, other projects will have the same impact. Second, Libra is still evolving. From the news media's initial report on Facebook's issuance of stablecoins to the official announcement of the Libra project's white paper [ 2,3 ] , the nature of this project has changed a lot. One of the biggest changes is that the project has changed from a model operated exclusively by Facebook to a model jointly operated by a 100-member association. Even six months after the official announcement of Libra, Libra is still changing. One of the things that will definitely change is the minting mechanism of Libra stablecoin. Libra is likely to only provide the technical infrastructure for issuing stablecoins, or only issue USD-based stablecoins; third parties can issue stablecoins based on other legal currencies on top of this infrastructure. Third, Libra will definitely be launched in the market. American society is a business-driven society, and a situation in which business models and even business systems change as a result of technological development is an irresistible trend of the times. After the game between the parties, Libra will surely be launched within the scope consistent with the existing legal system. The above are the three basic judgments of Libra. Based on these three basic judgments, the author analyzes the nature of the Libra project and its impact.

Second, the three main development lines from Bitcoin

Blockchain and encrypted digital assets originate from Bitcoin. By analyzing the development trend since the emergence of Bitcoin, we will find that there are three main lines of continuous development: blockchain technology, digital products circulating on the blockchain, and consensus mechanism.

In the Bitcoin era, the underlying blockchain technology supports only one digital product, which is Bitcoin. Bitcoin is a financial product with the simplest attributes, that is, a currency with only one value attribute. The consensus mechanism in the Bitcoin era is a simple POW consensus mechanism based on computing power. In the Ethereum era, blockchain technology has evolved into a blockchain technology that can perform complex logic tests. Digital financial products based on blockchain technology have developed into digital financial products that support various attributes. The consensus mechanism has also evolved into a rights-based POS consensus mechanism. Also in the Ethereum era, the consensus mechanism began to be applied to social organizations. The DAO is a community consensus that tries to apply the consensus mechanism to the development direction of Ethereum technology.

During the Libra period, it will be found along these three main development lines that the three components of Libra are actually the continuation of these three main lines. According to the Libra white paper, Libra is composed of three parts: Libra stablecoin, Libra blockchain and Libra association. Libra stablecoin is the first and most basic digital financial product issued on the Libra blockchain. However, Libra stablecoin is definitely not the only financial product issued on the Libra blockchain. The Libra blockchain has good support for smart contracts. Various complex digital financial products can be customized with smart contracts. The Libra blockchain supports the circulation of these digital financial products. Therefore, after the launch of Libra, there will be more financial products for circulation transactions on the Libra blockchain. Similarly, the consensus mechanism in the Libra era was not limited to the application of technology, but began to be used in social organizations. The Libra Association, consisting of 100 members on the basis of equality, is a further application of the consensus mechanism in social organizations.

In general, Libra is a stage in the development and application of blockchain technology, and has pushed blockchain technology to an unprecedented level, thus causing worldwide attention to the development of blockchain technology and its impact. Although Libra has caused such a great response worldwide, the essence of Libra is still the development and application of blockchain technology. It is only because of the global influence of Facebook and the members of the Libra Association that the relevant institutions around the world have become more aware of the impact of blockchain technology on modern society.

Composition of Libra

(1) Libra stablecoin

According to the current design, the Libra stablecoin has the following characteristics: First, the Libra stablecoin is issued based on the mortgaged legal currency and short-term government bonds. Second, the unit value of Libra stablecoin is a basket of fiat currencies. This benchmarking mechanism is similar to the Special Drawing Right (SDR) of the International Monetary Fund (IMF). Libra stablecoin currently targets a basket of fiat currencies including the US dollar, Euro, Japanese yen, British pound and Singapore dollar. The corresponding proportions of each fiat currency are 50%, 18%, 14%, 11% and 7%. Third, the Libra Association has clearly stated that it will not have its own independent monetary policy, but will rely entirely on the monetary policies of countries in a basket of fiat currencies. Fourth, the minting tax levied by participating miners is the interest they receive on mortgage fiat. Fifth, the amount of Libra stablecoin issuance depends entirely on market demand. Sixth, the Libra blockchain is the underlying clearing and settlement network that supports the circulation of Libra stablecoins.

(II) Libra Blockchain

In terms of technology, the Libra blockchain is an alliance chain, that is, an alliance chain composed of 100 member nodes of the Libra Association. The consensus mechanism adopted by this alliance chain is the Hotstuff consensus mechanism proposed by VMWare. The Libra blockchain supports Turing's complete computing environment and the smart contracts running on it. Financial products with various attributes can be customized based on these smart contracts.

In the future development direction, the Libra Association hopes to develop the Libra blockchain from an alliance chain to a public chain. However, the Libra white paper does not elaborate on this development mechanism. This is obviously another very big uncertainty in the development of the Libra project.

(3) Libra Association

The Libra Association program consists of 100 institutional members worldwide. Every member has equal power. Libra's decisions are made by members voting. When the Libra project white paper was announced, the 27 members who announced their intention to join included Visa, MasterCard, PayPal, Stripe, Uber, and Lyft.

Of the three components of the Libra project, the Libra Association is a non-technical component, but it is the most important component. Without the Libra Association, the Libra blockchain and Libra stablecoin are just another blockchain project that is trying to compete with Ethereum, and there is basically no chance of success. It is precisely because the Libra Association has the support of 100 members worldwide that the Libra blockchain and Libra stablecoin can truly achieve the purpose of the Libra project.

Fourth, Libra's impact on the financial industry

(A) currency

The original intention of Bitcoin is to provide an electronic currency for direct transactions between accounts. The total amount of currency issuance is constant, and the issue and acquisition mechanism is constant. This system runs automatically and no one or organization is responsible for it. Although the later development proved that Bitcoin is not suitable for currency circulation, the blockchain technology adopted by Bitcoin has inspired more people to try to develop a more reasonable currency than the legal currency mechanism.

There are two main ways to provide new digital currencies in the market: one is algorithm-based, represented by Basis, but the Basis project has been terminated due to non-compliance; the other is based on digital asset mortgages and distributed Issuing digital currency in a digital manner, represented by MakerDAO, this model is still in progress. In the future, digital currencies will be issued based on two forms: one is the digital currency issued by the central bank based on sovereign credit, which is commonly known as the Central Bank Digital Currency (CBDC). The essence of the CBDC is the existing legal currency Digital version; the other is based on digital asset mortgage, issuing digital stablecoin in a distributed manner [4 ] . In the foreseeable future, digital currencies issued by the central bank will be the mainstream in the market. For digital stablecoins issued in the second way, because the amount of digital assets that can be mortgaged is too small, it is impossible to generate a sufficient number of such stablecoins to meet market demand. Libra stablecoins are actually derivatives of the first approach. If Libra stablecoins are still benchmarked against a basket of fiat currencies in the future, it will definitely have an impact on digital currencies issued by central banks in various countries. In view of the global influence of Facebook and members of the Libra Association, the circulation range of Libra stablecoin will exceed any digital currency issued based on sovereign credit. This situation is unwilling to be seen by any sovereign government. If the Libra stablecoin is changed to be issued based on a single fiat currency [5 ] , then the Libra stablecoin will not affect the existing fiat currency system. In this case, because Libra stablecoins operate on the Libra blockchain, their functions in cross-border payments, transfers, and transactions are superior to existing mechanisms, thereby weakening the role of existing intermediaries in cross-border transfer transactions. , But will increase the efficiency of global economic activity.

At present, there are more than one hundred sovereign states in the world, and each sovereign state is issuing its own currency. Each sovereign country has different credits and influences, and the currency circulation of different countries is also very different. Due to the restrictions of the monetary policies and clearing and settlement systems of various countries, there are more than 100 currencies at the same time worldwide. After the launch of Libra stablecoin, whether it is a single digital currency against a basket of fiat currencies, or a series of digital currencies based on some fiat currencies, the market demand for fiat currencies will be reduced. Therefore, the concentration of currency markets worldwide will increase, and many less influential currencies will be forced to withdraw from the market.

(2) Clearing Network

So far, the market's focus on Libra has mainly focused on the Libra stablecoin, but the Libra stablecoin is just a Trojan horse. The hidden real threat is the Libra blockchain. The Libra blockchain provides a low-level clearing and settlement network that can support the circulation of various financial products. The Libra blockchain and the various digital financial products circulating on it will be the biggest disruption to the current financial market. In fact, the impact of blockchain technology on the clearing system has begun [6 ] , Libra just makes the market more aware of the potential of blockchain technology in this regard.

Liquidation within a single fiat currency jurisdiction

The current currency clearing network is closely related to fiat currencies. The US dollar has its own inter-bank clearing and settlement network, and the RMB has its own inter-bank clearing and settlement network, and these networks are based on a centralized calculation method. After years of continuous development of technology and business, such a clearing network has been able to meet the payment and clearing needs in daily economic activities. Therefore, in the field of existing legal currency circulation, it is not necessary to use distributed accounting technology to provide payment clearing services. It means that Libra has no use in such application scenarios.

2. Cross-border liquidation between fiat currencies

When a user needs to use his own currency in another fiat currency circulation area, he needs to perform system and business docking between the two clearing networks. The currently well-known system in this regard is Swift. When conducting cross-border remittance operations, the bank charges for this include Swift fees. This centralized bookkeeping method has low efficiency and high cost for docking between different clearing networks, which is an obstacle to restricting the free circulation of currency in the global scope.

The Libra blockchain network was global from the beginning. Libra stablecoins can achieve free circulation worldwide on this clearing network. Compared to the current fiat currency and clearing and settlement mechanism, Libra stablecoin and its clearing and settlement mechanism have very strong advantages. With the current increasing global economic activity, Libra's superiority in this regard has become more obvious, which will inevitably reduce the market demand for existing fiat currencies and clearing networks. Therefore, after the launch of Libra, the first application scenario must be cross-border payments and transactions, and it will definitely not be limited to a closed area where fiat currency is in circulation. Similarly, the first to obtain financial services based on Libra is not the 1.7 billion users who currently do not have financial services worldwide, but users who conduct economic activities across borders.

3. Clearing and settlement of securities transactions

The Libra blockchain supports more complex financial product circulation. Not only the simplest financial product such as currency, but also a wide variety of financial products, such as accounts receivable, stocks, etc. Wait. Because the Libra blockchain is global, it will greatly increase the current range of financial products, which is a great improvement on the global financial market and the biggest disruption of the financial market.

(3) Commercial banks

In the Internet age, Bill Gates has a quote that is often quoted: "We need banking, but we no longer need banks." In fact, the development of technology, especially the widespread application of Internet technology, is rapidly advancing this process. The number of ATMs has been significantly reduced, and the bank's counter business has also been significantly reduced. In terms of clearing, third-party payment institutions around the world are trying to complete the clearing function of payment transactions in their own systems, in order to reduce dependence on bank clearing business. The progress of third-party payment institutions in this regard has begun to impact the business of commercial banks.

The development of Internet technology has significantly improved the cost of information, and blockchain technology has improved the mechanism of value exchange. This has a more direct impact on the current business of commercial banks. The commercial bank market is facing market restructuring due to the introduction of blockchain technology [7 ] .

Payment settlement

The advent of blockchain technology will allow institutions other than banks to conduct clearing and settlement of payment transactions. The application of distributed bookkeeping technology will improve the clearing between banks, moving from the current centralized clearing system to distributed point-to-point direct clearing. If digital currency is introduced, settlement can be made directly between peers and transactions can be settled. It is commonly referred to as "paying one hand and delivering one hand."

Libra provides a low-level clearing and settlement network, and also provides stable coins circulating on it, so that it can perform payment business on Libra. Due to the superiority of Libra's underlying clearing and settlement network, the market will definitely reduce the services provided by commercial banks in this regard. Payment and settlement, the basic service of the original commercial bank, will be directly affected.

Loan business

After the launch of Libra, if it can be recognized by the market, consumers can withdraw fiat money from commercial banks, convert it into Libra stablecoin, and use it on the Libra blockchain. This will greatly reduce the deposits in commercial banks, thereby weakening the ability of commercial banks to carry out core business-loan business.

(4) Central Bank

Both Bitcoin and Ethereum were originally circulated globally as a digital product. Even though Bitcoin was originally designed as a digital currency, because Bitcoin is not based on any actual assets, it cannot be used as a universal value exchange medium. An important revelation of Bitcoin and Ethereum is to let people see the possibility of a currency that can be freely circulated around the world (neither restricted by monetary policy nor by the underlying network). However, the fluctuations in the value of Bitcoin and Ethereum, especially their unregulated nature, have prevented them from being used as real currencies in the global circulation. A compliant digital stablecoin is a further development in this area, and this type of digital stablecoin is more likely to circulate globally.

Before Libra appeared, there were already compliant digital stablecoins in circulation. The more representative digital stablecoins include PAX, USDC, GUSD, etc. These stablecoins are anchored in the U.S. dollar and are relatively small in size, and have not attracted the attention of central banks in various countries. However, the Libra stablecoin is a basket of fiat currencies. In addition, given Facebook and the number of users of members of the Libra Association around the world, the Libra stablecoin will definitely affect the fiat currencies of various countries now in circulation, and will naturally attract the attention of central banks in various countries Worry.

The impact of the Libra project on central banks in various countries can be divided into two aspects: the impact on Libra's benchmarking of the central bank in a basket of fiat currencies, and the impact on central banks outside a basket of fiat currencies. For a central bank in a basket of fiat currencies, the main concern is how much weight the domestic fiat currency occupies and the proportion of other fiat currencies. For example, the French Minister of Finance made it clear that he did not want the Libra stablecoin to represent only one sovereign currency. Obviously he does not want Libra stablecoin to represent the interests of the US dollar. According to the current design of Libra's basket of fiat currencies, the US dollar accounts for 50% of them. However, this ratio is also relatively uncertain as to whether the US dollar is satisfied with the US government in the global market for trade settlement and financial transaction settlement.

For central banks whose fiat currency is not in this basket of fiat currencies, Libra stablecoin will have a greater impact on domestic fiat currencies. These central banks must adopt corresponding measures to protect the position of their domestic fiat currencies in global financial markets. The impact of most fiat currencies worldwide is far less than that of Libra stablecoins. It is very likely that the fiat currencies of some countries will disappear in the future. The governments that issue these fiat currencies will lose their ability to raise funds and influence their economic decisions. The market concentration of global currencies will further increase, which will have a huge impact on the balanced development of global finance, economy and society.

The emergence of Libra put the central bank in a very embarrassing dilemma [8 ] . Central banks of various countries need to develop response policies as soon as possible. More importantly, it is necessary to work with central banks in other countries to take effective response measures. The essence of Libra is the further development of the application of blockchain technology. Blockchain technology requires multiple parties to cooperate. If based on the nature of blockchain technology and related applications so far, it will be easy to determine how the central bank should cooperate. In short, central banks of various countries should jointly build a clearing and settlement network based on distributed accounting technology, and issue the same CBDC on this network using the same technical standards [9 ] .

(5) Securities industry

Since the emergence of Bitcoin and blockchain technology, blockchain technology and digital financial products have gradually entered the traditional securities field. In 2017 and 2018, the rise of the Initial Coin Offering (ICO) allowed the market to see the huge potential of adopting tokens for primary market fundraising and secondary market transactions worldwide. At present, Libra's attention is focused on its impact on the banking industry, but Libra may also bring substantial changes to the securities industry.

Primary market

During the Ethereum era, Vitalik Buterin, the founder of Ethereum technology, adopted a crowdfunding method based on Ethereum to raise funds globally. The success of this fundraising method inspired the market. In 2017 and 2018, more projects appeared in this way for global public fundraising. Because this method can raise funds to investors around the world, and can quickly trade in the secondary market, it is warmly welcomed by the market. However, this approach was not compliant and was subsequently regulated and restricted in major regulatory regions. In the current U.S. market, the use of tokens to raise funds is limited to raising funds for alternative assets. The compliant fundraising method is called Security Token Offering (STO). However, due to the characteristics of such assets and the restrictions on investors who can participate, the scale of STO financing is not large. The potential of financing based on tokens has not been fully realized [10 ] .

At present, the equity rights and interests recorded by electronic bookkeeping can actually be more conveniently recorded using encrypted digital methods, which is commonly known as the token method. These equity tokens can be recorded directly on the entire network of the blockchain and directly circulated between accounts. In the US stock market, two agencies have begun applying to the Securities and Exchange Commission (SEC) for the establishment of a digital stock exchange. The two institutions are the company that BOX Exchange cooperates with tZERO, and the company that Miami Exchange cooperates with Templum. The purpose of the digital stock exchange is to directly issue digital stocks on the blockchain for fund raising and trading.

Secondary market

In 2016, the consensus of the securities industry on the application of blockchain technology in the securities industry is post-transaction liquidation, so there have been high-profile startup companies in this area in the United States and Europe. Such as Digital Asset Holdings in the United States, SETL in Europe. In the future, the secondary stock market will definitely adopt a combination of centralized matching transactions and distributed clearing and settlement.

Libra supports the operation of smart contracts, and smart contracts can be used to customize various securities products, including stocks. Libra also provides a low-level clearing and settlement mechanism including digital stablecoins. Such a relatively complete financial infrastructure can be adopted by the securities industry and directly applied to the primary and secondary markets worldwide [11 ] . It is possible to directly issue digital stocks and private equity financing on the Libra blockchain; it is also possible to conduct direct equity transactions between users on this chain, that is, over-the-counter (OTC) transactions ; You can also use centralized matching and distributed clearing and settlement of on-site transactions.

In view of Libra's value to the securities industry, when Libra was launched, the first to adopt Libra must be an encrypted digital currency exchange. This is because Libra provides some of the basic factors required for such exchanges, including stablecoins, the underlying clearing and settlement chain, and users worldwide. But mainstream compliant exchanges may use their own jointly developed blockchain to achieve the same purpose.

V. The financial world after Libra

The basic computing model of the current society is undergoing a transformation from a centralized computing model to a distributed computing model. Correspondingly, the way of recording financial products is also changing from electronic bookkeeping mode to encrypted digital mode. The combination of the two is bringing paradigm changes to financial markets. Before Libra appeared, this process had already begun, but it was limited to some subdivisions or geographical areas. For example, UBS led by Utility Settlement Coin (USC) and the application and exploration of trade finance in some regions. Due to Facebook's huge global influence, Libra's process will attract wider and more serious attention, and Libra has significantly accelerated this process.

Although Libra claims that its purpose is to provide financial services to 1.7 billion users who currently do not have financial services in the world, through the above analysis, we can see that Libra actually means far more than that. Libra is actually pushing the global financial market towards a more integrated and efficient financial market infrastructure (FMI). Libra's role in this regard is actually the result of the application of blockchain technology. Not just Libra is trying to achieve this vision, other companies are also striving to achieve the same vision. Bakkt is one such company. Bakkt's vision is to provide "helping consumers and institutions buy, sell, store, and consume digital assets on a seamless global network" [12 ] . Bakkt's entry method is to first provide a one-day bitcoin futures product that is delivered in kind to ensure the authenticity of the bitcoin price. However, Bakkt also invited Starbucks to participate so that Starbucks users can also use digital assets for retail payments [13 ] . Obviously, Bakkt also believes that the future financial ecology is a financial ecology that combines transactions and payments. Although Bakkt's vision is correct, its strategy is inherently flawed. Bakkt still uses a centralized system and traditional fiat currency to achieve this vision, which is completely inconsistent with the future financial ecological infrastructure [14 ] . Libra's strategy is to first provide a blockchain-based digital financial product clearing and settlement network, and the stablecoins needed to conduct transactions. Various applications can begin on top of this digital financial market infrastructure. Compared with Bakkt, Libra is a better way to realize the future digital financial ecology.

After the application of the blockchain technology represented by Libra in the financial industry, the future financial market will be an integrated digital financial network ecosystem, which is essentially different from the current financial market [ 15,16,17 ] . The current financial markets include banking and securities. The basic financial product of the banking industry is currency, which mainly provides payment and loan services. The basic financial products of the securities industry are variable-value equity products, which mainly provide services for generation and circulation of equity products. Both industries use centralized electronic bookkeeping. In the future digital financial ecosystem, the underlying technology that supports financial business operations is the blockchain. Support for direct transactions of financial products between users, instead of now only through financial intermediaries such as banks, clearing companies or exchanges. Users on the blockchain can directly complete the payment and loan business. Digital financial product transactions are also completed between users or through a centralized system.

In this new integrated digital financial network ecosystem, as retail payments and securities trading services are all completed on the same underlying network, users only need one account and one client to manage their own digital currencies and digital assets, and can be at any time For payment and securities trading, you can also convert between your own digital currency and digital assets at any time. Retail payments and asset transactions are therefore seamlessly integrated.

Inspiration from Libra

Libra is actually a development application of blockchain technology. Analyzing Libra's impact on the financial industry is actually analyzing the impact of blockchain technology on the financial industry. For practitioners in the financial industry, only by recognizing the impact of blockchain technology in all aspects, can they make correct decisions and grasp the huge opportunities brought by blockchain technology.

Internet technology enables the free exchange of information around the world, which has led to global companies like Facebook and Douyin. The global circulation of Bitcoin allows people to see that in fact, based on the blockchain technology, the value can be freely circulated globally. Therefore, a company that provides free exchange of value on a global scale is bound to emerge. Since value has a greater impact on people's lives than information, a company that provides a free exchange of global value in the future is likely to have far more influence than the current Facebook. Facebook clearly saw such an opportunity, and focused on building such an infrastructure, and similarly configured its corresponding organizational structure. In this sense, Facebook has greatly promoted the worldwide promotion of blockchain technology, and at the same time has made the world more clearly see a huge opportunity. I believe that after Libra, more similar attempts will appear. So what are the implications of Libra's design and the six-month history of the Libra project white paper since its release?

(1) Blockchain projects must be legal and compliant

The original intention of Bitcoin's design was to resist regulatory scrutiny. The Bitcoin system does not have any person or organization for operation and maintenance. Nodes are free to join and leave. It is a system where users can join and conduct transactions anonymously, so the Bitcoin system resisted supervision from the beginning. Ethereum has enriched and improved the blockchain technology system in terms of technology, but its characteristics of free joining and users who do not need real-name authentication still inherit the concept of Bitcoin's resistance to regulation. After Bitcoin and Ethereum, more types of distributed accounting technology systems began to appear. The inventors of these technical solutions clearly realized that if these distributed accounting systems are to be put into practical use, they must be carried out under the premise of legal compliance. A basic prerequisite for legal compliance is that participants must be authenticated by real name. The operator of this system can be an alliance of nodes, instead of the traditional exclusive business model. The most typical representative of this type of distributed accounting system is R3's Corda. Corda is designed and produced under the inspiration of blockchain technology. It has clear requirements for the identity of participants, while respecting the privacy requirements of transactions between business institutions. Corda is therefore able to be adopted by financial institutions worldwide. By the same token, any blockchain technology system that wants to provide value exchange solutions on a global scale needs to meet the basic requirements of regulation.

Libra is initiated by Facebook, the company is registered in Switzerland, and the initial 27 members are leaders in major industries and business areas. Such an organization must operate in compliance within the existing legal system. For any similar project after Libra, legal compliance is a basic requirement. A system that is completely designed in accordance with the public chain cannot achieve real value exchange on a global scale.

(2) The financial industry needs to grasp the opportunities brought by blockchain technology

In the Internet era, many traditional industries have been fundamentally changed or even disappeared due to the impact of Internet technology. Such as printing and publishing, retail, film industry, hotel industry and taxi industry. In the Internet era, the financial industry is also greatly affected by the development of Internet technology. Today, such influences are still continuing. Leading financial institutions around the world are currently laying off staff. This phenomenon is not only caused by the economic cycle, but also the result of the application of technology. The blockchain technology and the encrypted digital assets running on it are fundamentally subverting the existing financial business operating model. Therefore, the blockchain technology will have the most direct impact on the financial industry, just like the original Internet directly Affects the publishing industry as well. For current financial institutions, the correct use of blockchain technology can help them gain a very strong competitive advantage, especially for those financial companies that currently do not have a leading position in the financial market, even from financial institutions such as Facebook. For companies outside the industry, it is a huge historical opportunity. The experience that has occurred in the Internet age has fully demonstrated the possibility of the above two situations. For the current financial industry institutions, actively and correctly adopting blockchain technology and applying it to solve existing financial problems is not a simple negative response strategy, but a huge opportunity to grasp the future.

In order to seize this opportunity, we cannot look at the problem from the perspective of the existing fragmented financial industry, but we should look at the problem from the opportunities provided by blockchain technology. It is also very important that the deficiencies in blockchain technology solutions cannot be viewed from the advantages in existing financial markets. The most typical ideological misunderstanding in this regard is to degrade the shortcomings of blockchain technology in this aspect with the processing speed in the existing technology system. It's like the original film maker didn't look at the sharpness of the original digital image. After the emergence of a new technology, the initial stage must be imperfect. However, the characteristic of technology is that it can be continuously improved and improved, so it can solve more problems and be more widely used. For blockchain technology, even in the current state of development, it can be used to solve many practical problems. These problems are usually "common sense" because of the lack of effective solutions and the existence of these problems for too long under the existing technical conditions. Such as the high cost and inefficiency of cross-border remittances, and the large number of people who do not have access to mainstream financial institutions because they have no credit history. Such problems can be solved based on reasonable application of blockchain technology.

(3) Factors other than blockchain technology determine the success and failure of the project

At this stage, it can still be said that the value of blockchain technology has just been recognized by the market. Therefore, the mainstream attention is still focused on the blockchain technology itself. But in a real solution, the characteristics of the blockchain technology itself do not determine whether a solution can really succeed. Factors other than blockchain technology determine more or less the success of a solution. In the Internet era, Facebook relied on simple website technology to build a company with a huge impact worldwide. From the formal announcement of the Libra project white paper to the six months to date, the biggest problem it encountered was not the blockchain technology itself, but the communication and coordination with the major financial regulators worldwide. This issue is forcing Libra itself to make major adjustments.

Another risk for Libra is its approach to project management. When the white paper of the Libra project was just published, the author pointed out in the research report that the biggest risk of Libra is that the scope of its project is too large [1 ] . Facebook has adopted a big-bang project management approach to advance this project, but the biggest disadvantage of this approach is that it is too risky. Libra's biggest setback to date has been conflicts with financial regulation and government agencies. And this contradiction is just one of the risks it faces. Again, all similar projects face the same problems. If the solution's project management approach is not appropriate, it is likely to cause the project to fail.

The match between market needs and solutions also determines the success of this project, which is also commonly known as the product market fit (PMF). The Libra white paper claims that its goal is to solve the 1.7 billion users currently not receiving financial services worldwide. But does this goal of Libra really match this problem in the market? I don't think there is a real match between the two. Users who currently do not have financial services are not denied financial services because they cannot use the Internet and cannot perform peer-to-peer transfer transactions. The point-to-point transfer service provided by Libra does not really help these user groups to obtain financial services. Libra can indeed provide solutions in scenarios where financial institutions cannot currently serve, but it must not be the first to appear in the application scenario of users who do not have financial services, but it will first appear in the application scenario of cross-border transactions and transfers. .

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