Gu Yanxi: The application scenarios and scope of Libra are fundamentally different from those of USDT, and the two will not form a positive competition

A recent Bloomberg article on USDT once again aroused the market's attention to USDT. We see that the global circulation and use of USDT is no longer limited to encrypted digital currency trading scenarios, and has begun to be applied to more fields. It can be said that USDT has begun to circulate and be used in the weakest field of existing legal currency services, that is, in the application scenarios of cross-border payment and cross-border transactions. USDT has rapidly grown to a scale of 10 billion US dollars worldwide, becoming the fourth largest encrypted digital currency in the current encrypted digital currency market. With the increasing of its total market value and its frequency of use in daily use, it begins to challenge the circulation and use of sovereign currency and becomes a problem that sovereign governments have to deal with.

Now there are also digital stablecoins based on a single legal currency in the market. These digital stablecoins are carried out in compliance with the local regulatory system in the issuing jurisdiction, and will follow the local laws in terms of user identity verification and anti-money laundering. Therefore, these digital stablecoins are fundamentally different from USDT. For example, in the U.S. market, there are PAX, USDC, GUSD, and the Libra stable currency that will be launched to the market soon. Libra stable currency has been positioned to be used on a global scale from the very beginning, so it will become a digital stable currency that can be circulated on a global scale. Due to its compliance features, its application scenarios and scope of application are fundamentally different from those of USDT.

First of all, the Libra stable currency is issued on the Libra blockchain. The Libra blockchain is a permissioned chain, jointly operated by members of the Libra Association. Users and institutions using Libra stablecoins must be approved before joining. Since the Libra Association needs to meet local regulatory requirements in any operating region in the world, users and institutions in the Libra ecosystem are legal users in the region. This is fundamentally different from USDT's anonymous account and the characteristics of joining at will.

Second, the Libra stablecoin will be issued based on a single legal currency. According to its issuance plan, it will be issued based on a series of legal currencies such as US dollars, British pounds, and euros. This is also different from the current USDT which is only based on US dollars.

In terms of market competition, the Libra stablecoin will not compete positively with USDT. The user groups and application scenarios of the two are completely different. Both will be in a state of independent development.

In addition to the above differences, Libra stablecoins and USDT will be similar in terms of application scenarios. The Libra stablecoin, like USDT, will first be used in cross-border payment transfers and transactions.

The field of cross-border payment and transfer is the first application scenario of digital stable currency. This is probably also the original intention of Facebook's original plan to develop a stable currency. According to media reports, the first application scenario of Facebook’s planned stable currency is cross-border remittance in India. India is a big country for remittances from abroad to its country. However, due to the low efficiency and high cost of current cross-border remittances, the Indian market urgently needs a more efficient and low-cost solution. In addition, due to Facebook's large number of users in the Indian market, Facebook plans to develop a digital stable currency to provide such services. The development of this stable currency has undergone great changes, and finally developed into the current Libra. Although the Libra white paper has always claimed that the target user group it serves is users who have not received financial services or underserved financial services around the world, I think that when the Libra stablecoin is introduced to the market, the initial application must be in the cross-border field. Among various cross-border applications, cross-border transfer is a major application scenario. Therefore, the Libra stable currency will definitely be widely used in this field. However, unlike the unregulated nature of USDT, the Libra stablecoin must be carried out in the region where it operates and with regulatory approval. So this is an essential difference between Libra stable currency and USDT in this respect.

Another major area of ​​cross-border applications is cross-border transactions. This includes direct transactions of digital financial products and transactions of cross-border commodity buying and selling. The initial market demand for USDT is a trading medium for cross-border transactions. The limitations of existing fiat currencies in cross-border transactions include the currency regulatory policies of various countries and the isolated clearing and settlement systems of each fiat currency. USDT actually bypasses these two restrictions directly. In addition, due to the characteristics of anonymity, USDT has recently rapidly developed to a scale of 10 billion US dollars. However, the Libra stable currency will still comply with the requirements of monetary regulatory policies in various places. It is superior to the existing fiat currency clearing and settlement system in terms of the underlying technical settlement system, so it will still bring obvious improvements. Cross-border transactions in the current market, especially commodity transactions, urgently need any improvement in the process, so as to increase the benefits of both parties to the transaction. Therefore, the launch of Libra stable currency will definitely be welcomed by cross-border e-commerce. The recent addition of cross-border e-commerce Shopify to the Libra Association is the best proof of this.

Another area of ​​cross-border transactions is cross-border digital financial product transactions. I have always believed that a digital asset exchange will soon appear in the Libra ecosystem. This exchange will trade various digital financial products based on the Libra stable currency in the Libra ecosystem. Since the users served by the members of the Libra Association are all over the world, the potential users of this exchange are also in every corner of the world. These trading users are therefore able to use Libra stablecoins for convenient cross-border transactions. Of course, such transactions are also conducted in a compliant manner in the region where the user is located. Given the current development of cryptocurrency market transactions, such a need already exists. Various service organizations in the encrypted digital currency market urgently need a digital stable currency to serve their business. This is why companies like Paradigm and Tagomi have recently joined the Libra Association. In the U.S. market, the SEC has recognized that Bitcoin and Ethereum are not securities products. Therefore, legal transactions can be carried out on these two encrypted digital currencies. At least among the compliant encrypted digital currency exchanges in the United States, the use of Libra stablecoins to trade these two products can be legally carried out. Therefore, in this segment, the Libra stablecoin will compete positively with USDT.

In general, the Libra stable currency will coexist with USDT in the market in the short term. But the Libra stable currency will definitely become the mainstream in the market, especially after the development of the digital financial ecology.