While some rules that would govern the Libra Association are probably necessary to set up Facebook’s cryptocurrency, other may be seen as anticompetitive. Libra was originally envisioned as a permissioneless blockchain where nobody could effectively control the money, and this, not surprisingly, raised serious concerns among central banks and governments on money laundering and terror financing. The new Libra 2.0 is envisioned as a permissioned blockchain (private) and it gives more control to the Libra Association who can monitor the flow of funds in the network. The validators, some of network’s members selected by the association, would have the power to approve transactions, mint and burn Libra coins. From a technical standpoint, this change makes Libra less ambitious but more palatable for central banks and regulators. Still, it may raise antitrust questions about how much power these validators may have over the transactions and the data exchanged.
The Libra Association would also decide whether and how new members can join. This means that the 20+ founding members will have the power to decide which companies (rivals in some instances) can join them. The white paper doesn’t explain all the rules of governance and leave a door open for modifications if and when required. These revised rules reduce the antitrust risks compared to the ones laid down in the original white paper but they may still give the founding members of the Libra Association too much control over who can access the system and under which conditions.
Despite the differences with Visa and Mastercard’s swipe fees, it is possible to compare the Libra Association with a card-based payment scheme where a credit card company and different banks agree on the fees to be charged. In theory, this type of scheme isn’t possible without an agreement between the main players on the basic rules of the game. In this regard, in view of Mastercard and Visa, they had to agree with banks which fees would be applied to create this new payment scheme because banks would never have the incentives to join or they would charge fees that would render the scheme unsustainable. However, U.K. courts determined that in the absence of the agreement, banks and card companies would have reached a similar scheme. Other U.K. courts reached the conclusion that the agreement was necessary but the level of the fee was anticompetitive. In Libra, it isn’t clear yet how much each validator could charge for validating each transaction, if the costs associated with keeping the network active (i.e. electricity) could be distributed among its members, what would happen if one member fails to honor its duties, etc. In the end, the lesson here is that the line between what is deemed necessary to create a new blockchain-based payment scheme and what may constitute an anticompetitive restriction (i.e. an illegal agreement between competitors) is very thin and Libra 2.0 still has to clarify some governance rules.
One thing is clear, with Libra or without, Facebook is pursuing payments and e-commerce opportunities. The company has recently named David Marcus, co-creator of Libra, head of Facebook’s Financial team who will supervise the digital wallet to hold Libra, the WhatsApp’s payments efforts in India and Brazil and Facebook Pay. Even if the Libra cryptocurrency fails, Facebook’s plans to allow users to make purchases on its apps will make the company’s advertising business more valuable as ads will likely be better targeted and users will spend more time on the apps. The fact that users could complete all their transactions with Libra would just be the icing on the cake.
In summary, Libra may be a nice long-term project with uncertain results and even more regulatory hurdles to overcome, but in the meantime, Facebook will join the e-commerce business where some analysts suggest the company could earn $1 billion in 2020 and up to $24 in 2024.
