Stablecoins
A Brief Overview of the IOSCO Stablecoin Evaluation
The Board of the International Organization of Securities Commissions (IOSCO) released a public statement concerning the risks associated with global stable coin projects recently. The regulatory body met on October 30th in Madrid to discuss the new type of cryptocurrencies and the possible effects the coins could have on global economics. The news showcases the growing concerns regulators have towards major tech firms releasing cryptocurrencies, in particular, Facebook’s Libra.
The IOSCO is a leading international policy forum for securities regulators. The organization includes members from across the globe. Notably, the firm’s board includes 34 securities regulators. Today, the IOSCO regulates more than 95% of the world’s securities markets in more than 115 jurisdictions. Consequently, the organization enjoys recognition as the global standard-setter for securities regulation.
Risk vs Reward – Stablecoins – IOSCO
This latest report covers risks and benefits arising from stablecoin initiatives, specifically, stablecoin projects with a potential for global reach. Projects such as Facebook’s Libra create a unique scenario in which a stablecoin could see massive global adoption. In turn, this adoption could upend the current financial markets. Notably, the IOSCO believes many of these projects fall under current securities market regulation.
The IOSCO report begins with an acknowledgment that stablecoins can potentially offer benefits to market participants. These benefits include a more efficient and secure transaction process that extends to consumers and investors alike. Despite the upside of stablecoins, IOSCO believes that potential risks exist in many areas. The areas of most concern include consumer protection, market integrity, transparency, conflicts of interest, and financial crime. Additionally, systemic risks are another of the group’s main concerns.
Standardization – IOSCO
The group seeks to discover what principles and standards could apply to global stablecoin initiatives. The firm proposes a case-by-case approach to the evaluation of these projects. Basically, regulators want to review the rights and obligations conferred by a particular stablecoin to determine if it falls under their regulatory reach. Also, the body wants to ensure that the obligations of the sponsor are understood fully.
Speaking in the report, Ashley Alder, Chair of the IOSCO Board described how many global stablecoin initiatives include features that are typical of regulated securities. He explained that in these circumstances, IOSCO Principles and Standards may apply. Importantly, a project’s structure is the determining factor. This can include disclosure, registration, reporting, and distribution methods.
Ashley Alder – Chair of IOSCO
Alder reinforced his statements after citing the most recent g20 report on the matter. This report points to the inherent public policy and regulatory risks posed by these projects. Alder pointed to the most recent G7 statement regarding stable coins as well. Not surprisingly, the report echoes the concerns of the G20 nations. She spoke about the importance of these statements and the need to move forward with a global initiative.
Collaboration IOSCO
Importantly, Alder explained that his organization will work closely with the Financial Stability Board on any follow-up reports in the works. In fact, Alder plans to work closely with multiple standard-setting bodies to ensure a globally coordinated response to these tokens. Importantly, one of the main goals of the report is to encourage international collaboration as a means to identify and mitigate potential issues as they emerge.
What to Expect
The IOSCO will continue its stablecoin assessment and consideration to better track the effects of these tokens. This research, combined with other researchers, and securities market regulators, should give the organization a better understanding of what to expect moving forward. For now, you can expect to see larger tech enterprises seek to utilize stablecoins to improve efficiency and save on costs associated with fiat currencies.
Libra : Plagued by Fear and Anger
When first announced, Facebook subsidiary, Calibra, and its digital token, Libra, pointed to a bright future for digital assets.
In the time since, however, Calibra and its two proposed tokens have been met with nothing but fear and hostility – with much of it warranted.
Despite a lawsuit, and dwindling support levels, those behind the project remain adamant that they will make it work. While this may appear foolhardy, at first, it is important to remember the power held by the company organizing the entire venture. To be frank, Facebook has the financial capability and influence to make this happen on their own.
Losing Support
As stated, since announcing their project, Facebook and their subsidiary, Calibra, have experienced a tumultuous few months. As a result of on-going scrutiny towards the project by government officials around the world, we have now seen at least 6 of the major backers behind the project withdraw.
The following are a few of the statements issued to news outlets such as CoinDesk, Financial Times, and more, by some of those withdrawing from the project.
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PayPal
- “We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future. Facebook has been a longstanding and valued strategic partner to PayPal, and we will continue to partner with and support Facebook in various capacities.”
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MasterCard
- “MasterCard has decided it will not become a member of the Libra Association at this time. WE remain focused on our strategy and our own significant efforts to enable financial inclusion around the world. We believe there are potential benefits in such initiatives and will continue to monitor the Libra effort.”
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Visa
- “Visa has decided not to join the Libra Association at this time. We will continue to evaluate and our ultimate decision will be determined by a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations… Visa’s continued interest in Libra stems from our belief that well-regulated blockchain-based networks could extend the value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets.”
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Stripe
- “Stripe is supportive of projects that aim to make online commerce more accessible for people around the world. Libra has this potential. We will follow its progress closely and remain open to working with the Libra Association at a later stage.”
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EBay
- “We highly respect the vision of the Libra Association; however, eBay has made the decision to not move forward as a founding member…this time, we are focused on rolling out eBay’s managed payments experience for our customers.”
Despite the loss of these big players, Calibra remains well backed by a slew of others, such as Coinbase, Uber, Spotify, and more. Will these companies, and others, follow suit and abandon ship?
Trademark Infringement
Further complicating the situation surrounding Calibra and its two tokens, is the recently announced lawsuit against the company.
Current, a New York based financial service provider, has filed a trademark infringement suit. More specifically, the company believes that Facebook copied their branding, and used it for their own purposes. The following images show the icons used by each company, with obvious similarities being evident.
While this situation is still in its early days, it will do nothing but complicate an already complicated situation. Time will tell what effect this potential trademark infringement has on the viability of Calibra, overall.
Calibra
A subsidiary of Facebook, Calibra, was launched in 2019. This project was built to act as a digital wallet for supporting the Libra stablecoin as an eventual global currency.
For a more thorough look at the project, and the two tokens it is built upon, make sure to read the following article.
Calibra – A Product of Facebook, Built on Two Tokens
In Other News
Over the past few months, we have covered multiple developments pertaining to Calibra and their respective tokens. We will continue to do so as the situation unravels. For now, here is a brief look at the progression of acceptance experienced by the project.
SEC See Pressure to Label Libra a Security Token
Authorities Weigh in on Facebook and their Stablecoin, Libra
Will Facebook Subsidiary, Calibra, See the Light of Day?
This week a closed congressional session was held to update members on recent developments in the crypto sector. Not surprisingly, lawmakers choose to focus primarily on Facebook’s Libra token. To that end, congressional members pressed the SEC for an answer to whether or not Libra would fall under current securities regulations.
Closed Session
The session was held by the Committee on Financial Services on Sept 24, in room 2128 of the Rayburn House Office Building. Five SEC commissioners participated in the meeting including Chairman Jay Clayton, Robert J. Jackson Jr., Hester M. Peirce, Elad L. Roisman, and Allison Herren Lee. Notably, the official title of the meeting was “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat.”
After a brief discussion regarding the shift from public offerings to private crowdfunding campaigns, the board began discussing cryptocurrencies. Committee members pointed to the April 2019 guidance which the SEC released to help investors determine if a token falls under securities regulations. They then applied the guidance to Facebook’s strategy
Libra Strategy
According to Facebook’s Libra whitepaper, Facebook intends to use its digital currency to facilitate the growth of its internal economy. There will be two types of Libra tokens. The first is the Libra Investment Token which is offered to association members only. Notably, all association transactions are backed by actual bank deposits and government securities. These securities are to be held in the Libra Reserve. The second token is for Facebook users. These tokens are what users can send and receive in exchange for goods, services, or as a means to transfer value. Importantly, Facebook plans to create new tokens only when authorized resellers purchase tokens from the association directly.
As part of Facebook’s initiative, the firm created a non-profit called the Libra Association which is based in Geneva Switzerland. The Association consists of Facebook alongside 27 additional members. Swiss officials have long been supporters of major blockchain products. Consequently, the country has one of the most robust legal frameworks available to blockchain investors. In the past, Facebook cited this pro-crypto stance to explain the decision to base operations in the country.
Facebook Libra Office in Switzerland
Libra Investment Token Issues
The panel considered the Libra Investment Token a security for a couple of key reasons. Firstly, the token is to be sold to investors to fund startup costs. Also, this token provides dividends to investors. On the utility token variant, the SEC was vague. The SEC stated that the token may also be a security if it’s somehow integrated into the Libra Investment Token strategy. Another point of confusion was when the SEC attempted to determine if Libra token holders “had a reasonable expectation of profits.
Consequently, SEC regulators are undetermined at this point where to place this token since Facebook doesn’t plan to pay dividends to these token holders. Also, problems may arise when crypto payments are used as a global money transference system. In this scenario, Libra could fall under E-money licensing requirements in the US.
Congress is Not a Fan
As it stands, lawmakers want to ensure Libra falls under as many regulations as possible. The overall tone is one of concern and distrust. Facebook will need to overcome these obstacles prior to a US launch.
Multiple Developments
In the past few days, there have been multiple developments pertaining to the anticipated Libra token – a to-be-released stablecoin by Facebook subsidiary, Calibra.
These developments surround, not only the actions of Calibra themselves, but how the token will be received in a variety of nations.
As suspected by many, not everyone intends to welcome the stablecoin with open arms.
Payment System
Although not surprising, it was recently confirmed that Calibra has, indeed, filed within Switzerland for the appropriate licensing, to be designated a payment system.
This filing prompted FINMA to release statements confirming the filing, and how exactly they view the project with regards to regulations through a new ‘stablecoin guideline’
This guideline, which builds upon similar ones previously released, which pertain to ICOs, can be found HERE.
French Fury and Scrutiny by the Swiss
The aforementioned filing by Calibra has prompted, not only statements from regulatory bodies, but from high profile individuals as well. Here are a few of those statements touching on the project.
The Swiss Financial Market Supervisory Authority (FINMA), stated,
“The highest international anti-money laundering standards would need to be ensured throughout the entire ecosystem of the project… For bank-like risks, for example, bank-like regulatory requirements would apply.”
The French Economy and Finance Minister, Bruno Le maire, was particularly blunt in his current views on the project. Speaking at a recent conference, discussing cryptocurrencies, he stated,
“I want to be absolutely clear: In these conditions, we cannot authorise the development of Libra on European soil.”
Commentary
Calibra has not sat idly by as authorities scrutinize their project. Representatives have been quick to defend their efforts, and placate the public at large with assurances of their dedication.
A statement made by David Marcus, Head of Calibra, in front of the U.S. Senate in July sums up their stance well. He stated,
“The time between now and launch is designed to be an open process and subject to regulatory oversight and review…We know we need to take the time to get this right. And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
Calibra
Acting as a subsidiary of Facebook, Calibra was launched in 2019. This young company was created with the goal of establishing a new digital wallet meant to connect the world through the use of the Libra stablecoin.
We previously took a closer look at the stablecoin discussed here today, and along with the Libra Investment Token, which is to launch alongside it. To gain a better understanding each coin/token, and how they differ, make sure to peruse the following article.
Calibra – A Product of Facebook, Built on Two Tokens
In Other news
Due to its potential to disrupt various areas of finance, and the far reach of Facebook, it should come as no surprise that we have detailed events pertaining to Calibra on multiple occasions. The following articles discuss hurdles being faced by the project, along with views being taken by the Senate.
Will Facebook Subsidiary, Calibra, See the Light of Day?
Key Points from the Facebook Libra Senate Hearing