Odaily Frontline | Facebook will not "control" Libra? What you need to know about association membership

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Perhaps the biggest hurdle Facebook faces in launching Libra is a lack of trust and opposition from regulators around the world concerned about Libra's potential impact on privacy and financial stability, as well as Facebook's role in governing it.

In response to the criticism, Facebook said its cryptocurrency is governed by the Libra Association — an independent organization based in Switzerland, a consortium of companies and nonprofits that acts as a liaison between Facebook and its development projects. transition organization. Facebook said it will ensure that neither itself nor any other company has too much influence over Libra. The organization has 28 "founding members" but plans to increase that to 100 in the future.

However, many of these founding members have close personal, professional and investment ties to Facebook and to each other, calling into question Facebook's characterization of the association. These tangled relationships even touch the top leadership of the organization, which experts say raises questions about Facebook's continued influence on the project and whose values ​​will apply to Libra.

“When the Libra white paper says Facebook is just one of 100 members, you can see for yourself that it’s not quite true,” said Katharina Pistor, a professor at Columbia Law School and an expert on corporate governance and finance.

This is critical because the goals of Libra, and the responsibilities that the Libra Association will assume, have previously been largely borne by governments and central banks.

Libra is a cryptocurrency based on open-source blockchain technology developed by Facebook. Unlike most cryptocurrencies, it was designed to be traded, not invested. People can use Libra to send money to friends, or to pay online through email and other methods - free (or at least cheaper) and easily through a digital wallet app, the first of which will be offered by a Facebook subsidiary. Facebook says Libra can improve financial services around the world.

Many experts and lawmakers believe that Facebook's billions of users will make Libra the most widely used cryptocurrency and could make it strong enough to rival government-backed currencies like the U.S. dollar, potentially threatening the stability of the traditional financial system sex. The Libra Association will oversee the currency: ensuring its value is preserved, deciding how to work with regulators, and how to protect users' privacy.

This is why regulators are particularly concerned about Facebook having a significant impact on the Libra Association. Some do not believe it will give up on managing such an ambitious project, not to mention that Facebook has a history of violating user privacy and its platform being used by foreign criminals, the most notorious of which is accusation of meddling in the US election. Many lawmakers reiterated that concern during two hearings on the program in July, held by the House Financial Services Committee and the Senate Banking Committee.

So according to Facebook, the purpose of the Libra Association is to help people generate trust in the project.

“The reason we designed Libra the way we do is that Facebook is just one of 100 different members of the Libra Association with no privileges, which means you don’t have to trust Facebook,” Libra founder David Marcus told lawmakers at the hearing.

Although Marcus has promised to wait for regulatory approval, he has also publicly stated that he still plans to launch Libra next year. It stands to reason that the Libra Association would not need approval from U.S. regulators to set up outside the U.S., but without U.S. users, it will struggle to gain traction. While the association is still in its early stages, ties between its founding member companies could make it harder to gain the trust of lawmakers.

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With David Marcus at the center, the Libra Association "launched" a network of relationships

Much of that connection started with Marcus himself.

Marcus is the founder of Libra. He now manages Facebook's subsidiary that develops Libra-related products and services, and is a member of the Libra Association's executive leadership team. Marcus was a director of Coinbase, one of the association's members, until last year, and was president of PayPal, another member company.

Although Facebook claims that it does not control Libra, most of the current 28 managers of the Libra Association have close personal, professional and investment ties. As shown in the diagram below, this network includes 11 executives, board members, founders or personal friends of the founding member companies.“So, we’re talking about a currency that’s basically controlled by a non-democratically chosen coalition of large corporations?” Alexandria Ocasio-Cortez, a New York Democrat, asked at the hearing.Facebook said it reached out to various institutions about joining the association in the months leading up to Libra's public announcement. The final 28 founding members included Facebook and other payments, technology, venture capital and telecommunications companies, as well as four nonprofits.

Marcus explained to lawmakers at the hearing that the companies want to "build this network to solve problems," adding that any compliant

• a set of common guidelines

• organizations can join. The member firms themselves have cited various reasons for joining the association, including an interest in the business applications of blockchain technology and a desire to improve access to financial services. Others said they just didn't want to miss out on a chance to be part of a potentially revolutionary project.

• Facebook has said the association will be Libra's independent overseer and that after Libra passes the development phase, Facebook will have the same influence as any other member. However, many of the founding members of the Libra Association have other ties to Facebook, Marcus, or others. Here are a few examples:

• Peter Thiel founded PayPal and sold it to Ebay. He was Facebook's first major investor and is now a member of the company's board of directors. Thiel has also invested through his VC firm in fellow association members Spotify, Lyft and Stripe;

• Mark Zuckerberg is the founder of Facebook and one of three directors of the Association's member Breakthrough Initiative. He’s also a personal friend of Spotify founder and CEO Daniel Ek — Zuckerberg attended Ek’s wedding in 2016;

• Venture capital firm Andreessen Horowitz is a founding member of Libra and an early investor in Facebook. The firm has also invested in Lyft, Stripe, Coinbase and Anchorage. Its co-founder Marc Andreessen sits on Facebook's board and was a director of Ebay when it owned PayPal. Another co-founder, Ben Horowitz, is a director of Lyft;

Association member Union Square Ventures has invested in Coinbase and Stripe;

Frederic Court is a Director of Association Member Farfetch and Founder of Felix Capital. Felix Capital previously invested in David Marcus' startup Zong;

Wences Casares is the founder and CEO of Xapo, a member of the association. He is also a director of PayPal and has served as a director of Kiva, a non-profit member of the association. Xapo has also received investment from Ribbit Capital, which is also a member of the association.

While these individuals may not be directly involved with the Libra project, their connections suggest that the Libra Association may not be as "diverse and global" as Facebook claims. These connections even touch the top leadership of the Libra Association.

Three leaders have been identified in filings with the Swiss government so far: David Marcus, Bertrand Perez and Kurt Hemecker.

Marcus has been working on digital payments long before Libra. He founded Zong, an online mobile payments provider based in Geneva. When he sold Zong to Ebay in 2011, Ebay made him head of PayPal's (then Ebay-owned) mobile division and the following year he was named PayPal's president. In 2014, he left PayPal to join Facebook.

Perez and Hemecker previously served as executives at Zong and later at PayPal when Marcus was president. According to their LinkedIn profiles, Perez is now the Libra Association's managing director and chief operating officer, and Hemecker is head of business development.

Having Marcus and two longtime colleagues lead the association from the start could give Facebook powerful leverage over the organization's future culture, said Columbia Law School's Pistor. Board members serve one-year terms, but can be re-elected indefinitely.

“They move quickly and put their people in place,” Pistor said. “The managing director will set the tone for the company at the outset, which gives them a lot of control.”

The association disputes this view. Dante Disparte, the association's director of policy, said that while Facebook played a key role in growing the Libra Association and developing the Libra network, the company "has no greater rights, obligations or voting rights than any other member."

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Why is the governance of Libra so important?

Libra’s white paper and filings with the Swiss government suggest the association will lead an organization similar to other nonprofits.

All member companies will form a "Council", which will meet twice a year to make major decisions, such as adding new members or changing Libra's technical foundation. Since Libra has more members and less frequent meetings, the other two groups will manage Libra more regularly. A board elected by the committee will be responsible for Libra's broader strategic direction. An executive committee appointed by the board of directors will be responsible for the day-to-day operational control of Libra.

The Libra Association's charter, which has yet to be ratified, is expected to provide more details about the organization's full, formal roster of leaders and how it will operate.

Marcus emphasized that the association will advance an important good cause by making money transfers faster and cheaper. To achieve this goal, Facebook subsidiary Calibra will launch a digital wallet for users to save, store and send Libra. Other companies could develop similar services, though experts agree that Facebook is likely to be the fastest and most widely adopted due to its large global user base. Calibra will operate independently and the two companies do not plan to share user data, Facebook said.

Danny O'Brien, director of strategy at the Electronic Frontier Foundation, a consumer privacy advocacy group, said he was concerned that relationships among association members could make it difficult for Libra's other digital wallets or other crypto projects with the same vision to compete.

"It's probably in the interest of all these companies to encourage you to use Facebook's software and services, because they're already in it now," O'Brien explained, "and they want Facebook's services to win, even though other programs might be better for consumers. "

Another key role for the association is to manage the Reserve, a basket of government-issued financial instruments that will be pegged 1:1 to Libra and fluctuate as needed to stabilize Libra's value.

Lawmakers fear the reserve could have major ramifications for governments and economies around the world if Libra grows at a rapid pace. They also fear it could concentrate power under an already dominant Facebook or a tightly knit conglomerate of large companies.

House of Representatives Maxine Waters said at the hearing: "If Facebook's plan is realized, the company and its partners will have huge economic influence and may destabilize currencies and governments." Sovereign currency or government competition.Libra member companies must invest $10 million to join. They will get a return on their investment in the form of interest on deposits, Facebook said. The funds will first be used to cover the association's operating costs before being distributed to member companies. Some experts worry that this could prevent the committee from approving new members and diversifying the group further.Despite Libra's altruistic goals, some experts and lawmakers argue that public goods, such as currencies and payment systems, and the data on consumer investments that result from their use, are better handled by public institutions. The finance ministers of France and Germany recentlyto developopenly object

Libra operates in Europe. The Federal Reserve, which is also paying close attention to Libra, is also