Facebook’s cryptocurrency, Libra, is facing trouble before it officially launches as several members of its governing alliance have already followed PayPal’s example and jumped ship. PayPal was the first to officially announce its departure from the Libra Association, purportedly to refocus its efforts on the company’s core offerings, but also to find new integrated solutions for its own platform. The exodus is a sharp blow to Facebook’s coin, which it had announced with a partners list that included heavy hitters in payment processing like Visa, PayPal, and eBay.
Libra already faced an uphill battle, facing criticism coming from Congress over concerns regarding Facebook’s track record on privacy, its seeming disregard for financial regulations, and its possible ulterior motives. PayPal’s first-deserter status gives it a clean image and lets it easily separate itself from any possible fallout Facebook may incur and gives it the ability to find a better alternative. More importantly, it shows PayPal’s understanding of the way the cryptocurrency market’s tides are shifting. By leaving Libra, it can avoid the wrath of regulators that would surely harm its own revenue stream.
The First Off the Sinking Ship
The current wave of desertions by former Libra partners is abrupt, but not at all surprising. There had already been growing disquiet within the Libra Association, and despite Facebook’s claims that it has hundreds of willing partners lined up, it was clearly relying on major names to support its launch. The first red flag was the nature of agreements companies like Visa, PayPal, and others signed. The deals were completely nonbinding until they were confirmed at the upcoming Libra Association meeting, and they did not impose any liability for leaving without prior notice.
For several months now, and especially following congress’ official inquiry into Libra, many of its larger partners have been working to distance themselves from the soon-to-launch coin, highlighting the nature of the deals and claiming they were still evaluating its potential. Libra has been problematic, to say the least. World governments are obviously concerned about Facebook’s stated goals of creating a secondary economy that could bypass regulators worldwide. Moreover, the company’s privacy record leaves much to be desired, especially when it comes to the privacy-oriented world of cryptocurrency.
More importantly, perhaps, the company is now facing the real challenges of creating a full infrastructure without the support of the largest players in a crowded market. This alone means that gaining traction will be difficult, as will be convincing regulators that everything is compliant with global financial laws.
PayPal and Others Make the Smart Play
Although time will tell how Libra’s launch and long-term prospects play out, the coin’s now-former partners undoubtedly made the right move by leaving when they did. Further association with Facebook would have gone from uncomfortable to problematic as world governments continue to grill the social media giant over its intentions and surprisingly vague white paper. Moreover, it seems Facebook was ignorant of the changing tides in the cryptocurrency market, which has been trending toward heavier regulation for some time now.
On the other hand, it shows that some in the payment processing industry understand the complexities of the market and saw the writing on the wall for Libra. Indeed, the crypto market has already developed a more sustainable and compliant ecosystem, largely with the help of established payment processors. Companies like Skrill, for instance, have developed full solutions capable of exchanging cryptocurrencies to fiat and handling payment directly from users’ wallets without running afoul of regulators. The company’s platform allows for instant buying and selling for a variety of cryptocurrencies.
Skrill has taken a smarter path of embracing cryptocurrency than PayPal, whose high-profile attempts have been unfruitful. Instead of wading into the murky waters of building a cryptocurrency from the ground up as PayPal was hoping for with Libra, Skrill works within the existing ecosystem with existing and highly popular cryptocurrencies, providing greater access to the unbanked populations Libra claims to work for.
Others already allow the use of cryptocurrencies for payments, and many are planning on integrating the feature in the near future. The common thread is that these companies are not attempting to break free of the regulatory framework, but rather work within it to provide sustainable solutions that can gain mainstream traction and provide access to more users. For PayPal, Visa, MasterCard, and eBay, leaving Libra means the opportunity to develop their own solutions without Facebook’s luggage to consider.
Tipping the Scales
Libra’s goals are lofty and seemingly altruistic—to provide access to finances for the unbanked and under-served populations across the world. However, the company’s refusal to play ball and its insistence on continuing to clash with governments at every turn are threatening the project before it even launches. More so than direct damage, the problem is that the tension will scare away many of the partners that Facebook must rely on if Libra is to gain any real legitimacy and credibility in the market.
Moreover, the fact that the crypto market has already come up with solutions that are much better equipped to solve the problems Libra is aiming at means that the coin is already behind. In that context, the exodus of partners seems almost prescient as Facebook is left to swim upstream against a growing tide of trouble.