The Death of Libra; Long Live Zuck Bucks
By Glenn Rosenberg, COO of Lucy Labs
What was Libra?
Libra was a blockchain based, digital currency intended to drive Facebook’s ecosystem using proprietary wallet technology called Calibra. Facebook created Libra to make a simple global currency and financial infrastructure available to billions of people.
The Libra project consisted of a permissioned proprietary blockchain (Calibra), a smart contract platform with its own programming language (Move), and a low-volatility cryptocurrency backed by a reserve of bank deposits and short-term government securities. The Libra coin was technically not a stablecoin because it was not pegged 1:1 with the US dollar. Instead its value would vary with the value of assets inside the Libra Reserve. At the time they were conceiving their multi-billion Libra coin, USDT (Tether) had only a $3.7 billion market cap vs. $82 billion today and USDC’s (USD Coin) market cap was $370 million vs. $50 billion today — quite the missed opportunity.
The Libra project was governed by an independent Libra Association. Its “Founding Members” included Mastercard, Visa, Stripe, Spotify, Uber, Vodafone, Union Square Ventures, Anchorage and Coinbase: a who’s who of the biggest players from the payments industry, tech, telecom, VC, non-profit and of course blockchain.
From the beginning, the Libra project rejected the Silicon Valley motto “ask for forgiveness rather than for permission”. In its whitepaper, Libra stated: “We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure, and trusted framework underpins this new system.”
Libra was headquartered in Geneva, trying to create a perception of neutrality. But despite the care the project took, it attracted an obscenely high level of scrutiny and skepticism from the outset.
What went wrong?
Ironically and atypical of their mantra to “Move fast and break things”, Libra’s desire to work with regulators doomed the project. Facebook made the decision to seek support of the global political powers, and most specifically (and with the worst possible outcome) US regulators who categorically opposed the effort. In October 2019, five Democratic senators said in a pointed letter to Mark Zuckerberg, “We urge you to immediately discontinue your pilot and to commit that you will not bring Libra to market.” They went on to say, “Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.”
While this letter was written by a group of Democrats, there was no shortage of bipartisan opposition, including the Republican minority leader Kevin McCarthy, who said he liked Bitcoin and decentralized digital currencies generally, just not Facebook’s. There was a meeting in the early days of summer 2021, between the chair of the Federal Reserve (Jay Powell) and the Secretary of the Treasury (Janet Yellen) during which the fate of Libra was once and for all decided. Interestingly, Powell was willing to give Facebook the go ahead, but after weeks of deliberation, Yellen was out. While Yellen said it was Powell’s decision to make, he wanted Yellen’s backing and political protection. With Yellen out, so was he. And that was that. It was over, after two years of behind-the-scenes political maneuvering, something at which Facebook never really excelled. Facebook failed to realize that because they conceived the idea, it was doomed from the start. One government official called it their “original sin.”
The Libra project unraveled quickly. Senior management left and many of the Libra Association members bailed, fearful of angering regulators. One senator wrote to Visa, Mastercard and Stripe that if they remained, they could expect increased Congressional scrutiny.
Facebook decided to jettison Libra, now renamed Diem, and started looking for a buyer. It tried to cut a deal with Gemini, whose co-founders, the Winklevoss twins, have their own history with Facebook. The negotiations went nowhere and, in the end, Diem assets were sold to Silvergate Capital Corp. (a regulated US bank) for $182 million on January 31st, 2022.
Full circle, Credits to Zuck Bucks
Let’s dial back the clock to 2009, the same year BTC was first created. In 2009 Facebook launched Credits, a virtual currency used within the Facebook platform to buy games, applications, etc. You purchased Credits using a credit card, PayPal, or another traditional payment method. While Credits were not using a blockchain, the goal was the same as the Libra project — to build a massive financial ecosystem within the Facebook (Meta) universe that could rival traditional payment systems. Ultimately the downstream vendors, app developers, gaming companies, etc., weren’t ready for this, and preferred to be paid via the traditional financial system or convert to their own in-game currency, instead of paying exorbitant fees to Facebook.
Enter Zuck Bucks, Meta’s latest venture to create a workable digital currency after the demise of Credits, Libra and Diem. Zuck Bucks were announced in the spring of 2022. Zuck Bucks (yes, that is the current name, selected by Meta employees) are not intended to be a cryptocurrency. Rather, they are styled after other in-game currencies like those used in Fortnite. It is still too early to know any details or roadmap for Zuck Bucks: they may just be a reboot of Credits. Their future will no doubt provide solid entertainment. Meta is big and powerful and it can keep taking the hits.