Jingwei Ventures: We have compiled 12 questions about Facebook and his Libra

The previous saying was "The Internet is omnipotent, it can subvert everything" – but except for banks. The system of foundation, efficiency, innovation, security and credit of the banking system seems to be one of the few, and it is difficult to rely on the higher-level organizational model of the Internet to easily subvert.

But now, the world's leading Internet company Facebook has to challenge this creed, and the challenge seems to be part of the "central bank" function. This is almost the hottest thing in the technology and financial world recently.

Below, we've put together 12 questions about Facebook and his Libra. These questions come from the reading and thinking of the homepage about the materials, white papers, etc. related to it.

Libra is one of the things that makes the coin ring exciting. Because of the inclusive financial values ​​of it, it can at least allow more people to access the digital currency – this was not so easy in the past. If you don't believe it, you can go to the exchange registration account and try again. test. But if Facebook simply and rudely has a special area on the page, so that his 2.7 billion users can visually see "one-click purchase of Libra", it is indeed a thing that makes people in this circle excited.

But this does not mean that we are so optimistic. If Libra is to take on the responsibility of stabilizing the currency, it means that its fluctuations are small, not the target of speculation . Libra needs to guarantee that it has a currency equivalent to a basket of currencies, and the reserves are sufficient.

This point, the original stable currency USDT did a good job, but when the digital currency market fluctuated greatly, the increase in the number of USDT also caused users to question whether its account could guarantee a US dollar to pay a USDT.

In the event of volatility or poor market confidence, we may not be holding the French currency to go to the central bank to pay the equivalent assets, but we will definitely ask Libra to pay. This is the rigid redemption function that the stable currency needs to bear.

At this point, we can only hope that the financial wealth of the Internet and the wealth of the participating nodes will be thick, and the business of the Facebook parent continues to rise. After all, as long as it involves finance, the ultimate thing that everyone is afraid of is similar. That is the credit crisis and the run.

In addition, many people think that the issue of currency exchange and international exchange is a threat to sovereign countries, but in fact, looking at the history of Facebook, Zuckerberg’s history of running in the major capitals and the history of the New Year’s greetings, we would like to think of this. It is his "investment".

Globalization is the ambition of a strong country. If an Internet company uses technology to allow countries and regions that have not yet achieved globalization in financial matters, they can better participate in global trade. Not a lot of bad and "multi-threat" things.

Zuckerberg has not yet announced the main types of currency, but it is conceivable to be a strong mainstream currency. The question, however, is whether the sovereignty behind these currencies recognizes Facebook's efforts to pave the way for them, and whether it is willing to participate and not set obstacles. This may be another test of Xiaoza and his Libra currency. After all, one thing can have both positive and negative interpretations.

Let "the service of the country and the people without … experience", this sentence was previously said by Musk – in fact, quite right, first use the star chain to allow third world countries to access the Internet, and then let them use Going to Facebook, and finally switching the local small country currency into the mainstream currency, to buy goods and services, looks good.

Another problem is that before the bank exchanged the currency of these countries, the handling fee was high. It was not the actual cost of the technology, but the commercial bank did not need the reserve of so many small countries. This will test the true ambition of this non-profit organization and the team behind it.

The following are 12 questions about Libra. Unlike the above questions without answers, here are some of the answers we have collected. I hope this will help you better understand Libra.

Although there are many doubts, some things really only have the meaning of discussion at the beginning. It is safest to stop at the harbor, but you will never know the scenery on the other side. Below, Enjoy:


What is Libra?


In a narrow sense, Libra is a digital currency with stable currency based on blockchain technology. Its biggest feature is the stable value of the currency. Simply put, when you exchange 100 pieces of fiat money for Libra, there are 100 pieces of Libra produced. When you exchange 100 pieces of Libra for legal currency, the 100 pieces of Libra will also be destroyed.

Libra doesn't have a fixed amount like Bitcoin, and there is no room for hype.

Broadly speaking, Libra is a financial infrastructure whose main purpose is to address the population of developing or underdeveloped countries and regions and to enjoy the pain points of modern financial services at lower prices. Here, financial services mainly refer to payment and cross-border remittances, excluding credit business.


What is the relationship between Libra and Facebook?

Facebook is the founder and leader of Libra, but Facebook does not own Libra.

Libra currently has 28 co-founding organizations operating as non-profit associations. Facebook is not directly involved in the Libra Association, but is involved through its subsidiary Calibra and is expected to expand to 100 institutions by the end of 2019. According to Libra's voting rights, each institution has equal voting rights, namely:

Each institution has at most 1% of voting rights, and Facebook's subsidiary Calibra is no exception.


Why is Facebook doing Libra?

In order to get new users . Facebook's lack of growth is an indisputable fact. The long tail market of developing and underdeveloped countries such as Africa and Latin America will be very helpful to Facebook's user growth through Libra's financial infrastructure.

In order to reverse the impression of hegemony . Facebook’s 2018 user privacy problem has been unresolved, and the impact has not yet been eliminated – political consulting firm Cambridge Analytica is accused of using Facebook’s poorly managed information and stealing up to 50 million Facebook users’ profiles in 2016 During the election, he helped the Republican candidate and current President Trump to launch targeted political advertisements. Libra, based on blockchain encryption, can weaken Facebook's impression of abusing user privacy, while Libra's full affirmation can also reduce doubts about Facebook's Internet hegemony.

From the stock market feedback, the market did not greatly recognize the value of Libra . Since June 19th, Facebook's share price has risen by 3.4%. However, from the recent public opinion feedback, many people are more worried about Libra's Internet hegemony and influence on Facebook.


Why do other institutions spend $10 million?

Participate in Libra?


According to the white paper, all founding organizations must spend at least $10 million to purchase Libra investment tokens to support Libra's launch, with the exception of academic institutions and multilateral organizations that cannot afford to pay. Some people will be curious as to why these institutions spend $10 million on this project.

First, the future user exchange of Libra money will form a huge cash reserve. These reserves will be used to invest in liquid assets with low liquidity. The interest generated will be used for operating costs and subsidized NGOs. Dividends are paid by the founding institutions with investments . This is an unimaginable but imaginative gain.

Then, these founding agencies almost all have the growth problems facing Facebook. Libra opened up the huge long tail market of developing and underdeveloped countries with financial infrastructure.

The payment industry like Visa can get more fees;

E-commerce platforms like eBay can get more deals;

Telecommunications companies like Vodafone can get more added advantages;

Blockchain companies like Coinbase can get more users;

Venture capital institutions such as the A16Z can also pre-empt the layout on this infrastructure…

Each profit organization will find its own new customers, new scenarios, new growth, and new stories from this incision.


Is the Libra Association a bank? How does it work?

The Libra Association is not a bank, but a non-profit organization . The most obvious difference is that Libra does not have a bank's profit model.

The bank's profit model is mainly achieved through the difference in interest rates between deposits and loans. At the same time, if the bank's deposit reserve ratio is 10%, it means that if the bank absorbs 10,000 yuan of deposits, it can release up to 100,000 yuan of loans.

According to the Libra white paper, Libra itself does not currently operate a loan business and does not pay interest to users. Therefore, users who exchange their legal currency for Libra are not depositing money with Libra. At the same time, Libra strictly adheres to the 100% reserve ratio. As mentioned earlier, Libra coins cannot be manufactured or destroyed in a vacuum, and Libra must be bought or sold in an equivalent legal currency to manufacture and destroy Libra accordingly. This is where Libra is defined as the foundation of a stable currency.

However, we also need to note that non-profit organizations are not not profitable, but not profit-oriented, which does not mean that it has no claims at all . As mentioned earlier, when Libra is really widely used, its total reserves will be a very large number, that is, the assets that are used in the lowest return on purchase are also a business that lays down to make money. Therefore, we should treat Libra objectively and rationally.


Where did I exchange the money for Libra coins?

The user's exchange of Libra's legal currency will become Libra's reserve. These reserves will be hosted and stored in a number of custodians with credit ratings for the purchase of low-risk, liquid assets to ensure that the reserves do not depreciate or even add value. These low-risk, highly liquid assets mainly include cash issued by reputable government central banks and short-term government currency securities. The daily trading volume of these assets is tens of billions or even hundreds of billions, which ensures that Libra's reserve size and structure can be easily adjusted.


Why should I use Libra to exchange currency?

Is the handling fee lower?

As mentioned earlier, this question must be answered based on Libra's target user base .

● For developed countries in Europe and America, the modern financial system is very developed and the exchange fee is low. Libra's cross-border remittance and currency exchange business currently does not treat these countries and people as their target users.

● For countries with foreign exchange controls, Libra's compliance process is also needed.

● Libra has an advantage for developing and underdeveloped countries with large populations in Africa, Latin America and Southeast Asia.

On the one hand, the financial system of developing and underdeveloped countries is not perfect. What many people need to solve now is not even the problem of high fees and low fees, but the question of whether financial services are available or not . As the Libra white paper says, there are still 1.7 billion adults in the world who are not exposed to the financial system, and among them, 1 billion people have mobile phones and nearly 500 million people have access to the Internet . In other words, Libra has an extremely wide blue ocean space.

On the other hand, even with financial services, the local infrastructure level leads to high costs. According to World Bank statistics, African countries are ranked high in global remittance fees all year round. In 2017, Namibia's remittance costs were as high as 27.64%. In other words, Libra, a blockchain-based financial infrastructure, will be highly competitive in these countries.


How does Libra keep the stability of the linked currency?

The performance of the modern financial system in the face of bloodthirsty capital is also not satisfactory. The bloody education of international hot money in Asian financial markets in the 1990s is proof. How Libra chooses a package of linked currencies, how to deposit their own reserves, how to establish a good cooperative relationship with the modern financial system, is still a series of problems that take time to digest.

When Libra incorporates payment giants like Visa and Mastercard into the founding body, it may be better. Because the payment industry itself is a complete financial upstream and downstream structure, involving payment, clearing, settlement and other aspects.

But in that case, factors such as market volatility, the operating conditions of the parent company, etc., may affect credit. As long as there is no large-scale credit crisis and there will not be a large number of large runs in a short period of time, then we can believe that with the computing power of such Internet companies, finding a balance between reserves and currency, there will be no particularly big problems. .


Why do I believe in Libra?

Strict access to the right to peace system

Libra's current 28 founding organizations are almost all influential listed companies and non-profit organizations. These institutions themselves are subject to very strict legal and compliance regulatory review. The founding institutions and members of the association to be expanded in the future also have strict entry requirements. But more importantly, Libra's average power system determines that only two-thirds of institutions at the same time are willing to do evil to create a devastating impact.

Licensed blockchain

In the early days, Libra will adopt a licensed blockchain model for a long time. Although this model has been accused by the blockchain fundamentalists as “no decentralization”, it is also possible to make regulation possible, which can effectively avoid the system risk or external attack risk when the initial system is imperfect. More extreme, even if Libra really has a major problem, the licensed blockchain is somewhat modifiable and recoverable.

Legal currency asset endorsement

Libra opened up its own and legal currency, indicating that the value of Libra coins is endorsed by a reserve of legal currency. Moreover, as mentioned earlier, Libra will also use reserves to purchase low-risk, liquid cash and short-term government securities assets in order to ensure that the reserves are not devalued.

The above-mentioned power system, technology choice and value endorsement together constitute Libra's trust. However, we must also see that there are still problems in the composition of these trusts. The biggest problem is the operating status of the founding organization itself. If the country's economic situation is not good enough, its credit rating will drop, let alone talk about the company? No matter how well the system and technology design is perfect, as long as the companies in the founding organization, such as Facebook, have a bad business situation, it is likely to affect the trust of Libra.


What is the significance and impact of Libra on the blockchain?

Libra's greatest significance is to instantly make the blockchain more than a few billion users, completing or even skipping user education.

Although the blockchain technology has been developed for many years, the main groups are still dominated by speculative coins. Companies that are serious about blockchain applications are also struggling to develop users and find users.

But the emergence of Libra directly covers the user community of billions of users in the founding community, and will cover the long tail market of developing and underdeveloped countries.

Maybe at the beginning, people just used Libra to complete simple payments and cross-border remittances. However, this incision and application scenario directly pushed the blockchain technology to the user community.

At the same time, the number of users of this scale will force more institutions to invest in the research and application development of the blockchain. Libra has also released a programmable Move language that allows people to develop applications based on Libra. In the future, these applications will also be more easily accepted and used by users. Under this interaction, the blockchain ecology may indeed enter a thriving development stage.

Of course, the great development of Libra will also make the company that is engaged in the same type of business in the industry directly lose its meaning.


Can Libra subvert the bank?

It will not be in the short term. As mentioned earlier, a commercial company does not really want to challenge the financial system of a sovereign country.

Libra should only be able to make up for payment and cross-border remittances in some countries and regions in the short term , and even need the collaboration of the modern financial system to make these businesses successful, which is why the payment industry is entering.

From Libra itself, the value of Libra coins is endorsed by other monetary assets. The liquidity of Libra's reserves is also guaranteed by the currency of the modern financial system and short-term government securities. This value of relying on the modern financial system endorsement is also fundamental to Libra's acceptance by users.


How to participate in libra?

Libra has strict entry requirements for organizations interested in becoming a founding member of the Libra Association and an operational verifier node.

For example, the requirements for the company are:

1) The market value exceeds $1 billion or the balance of receivables exceeds $500 million.

2) Serving more than 20 million people in multiple countries each year.

3) Ranked as one of the top 100 industry leaders by third-party industry associations or media companies. The list of parts that the association refers to when evaluating founder applicants includes Interbrand's “Top 100 Global Brands”, Fortune Magazine's “Top 500”, Standard & Poor's Global 1200 Index, FTSE Eurotop 300 Index and other regions that have selected well-known brands. List of countries.

The requirements for academic institutions are:

1) Top 100 in the QS World University.

2) Top 100 CSRankings list.

In addition, Libra has a corresponding entry barrier for blockchain companies and socially influential organizational structures. More detailed requirements can be found in the Libra white paper on "How to Become a Founder".

For individual researchers and protocol developers , you can preview Libra's test network (released according to the Apache 2.0 open source license) and supporting documentation to conduct your own research.

For ordinary people who want to try Libra, they will have to wait until the official release of Libra coins in the first half of 2020.


Libra White Paper BY Libra

"Average transaction cost of sending remittances to a specific country" BY The World Bank

The ontology network Ji Zhoudong also contributed to this article.

Author: Jingwei Home Jun

Source: Jingwei Venture Capital (WeChat Public Account)

Editor's Note: The original title of this article is: "How do you see Libra? Open this article to see slightly | [jingwei low-key production]