UPDATED 20:51 EDT / APRIL 16 2020

BLOCKCHAIN

Facebook’s Libra abandons original plan in favor of currency-backed stablecoins

The Libra Association, the group set up to manage Facebook Inc.’s proposed cryptocurrency today announced that its original proposal for Libra is no more.

Instead, it plans to launch a number of currency-backed stablecoins. Such plans were first reported March 3, but Facebook at the time denied the plan. Six weeks later, that’s exactly what has now been announced.

Instead of a single global currency to assist cross-border buying and selling, Libra will now focus on building a payment network with a range of stablecoins tied to local currencies. Stablecoins are a form of cryptocurrency designed to minimize price volatility by being tied to an asset, usually U.S. dollars. Each token or coin issued is tied to an actual held amount of the given asset; for example, one token would equal $1.

The new version of Libra could be compared to a bank that issues its own currencies. Although it’s not common for banks to issue their own currencies in 2020 — Hong Kong is a notable exception — before the establishment of reserve banks and government control over currencies, it was common even into the early part of the 20th century for banks to issue currencies.

That the Libra Association has abandoned its original plans doesn’t come as a great surprise given the regulatory scrutiny and often condemnation the original plan attracted. Put simply, the association had no choice to change direction and there was little to no chance of the original plan gaining regulatory approval.

Facebook announced Libra to much fanfare in June, but a backlash began within 24 hours as politicians criticized the move. Plans for the cryptocurrency went from bad to worse, with Senate hearings and founding members of the Libra Association quitting.

The Libra Association itself doesn’t say that, however. Its announcement spins the decision as Libra innovating. The one notable standout is Libra now saying it plans on “marrying blockchain technology with accepted regulatory frameworks,” which is a fancy way of saying it made the changes to conform to existing regulations.

Image: btckeychain/Flickr

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