ECB Signals Possible Rate Cut Prompting Trump Tweets - The Wall Street Journal

Mario Draghi, president of the European Central Bank, at the ECB headquarters in Frankfurt on June 12. Photo: Andreas Arnold/Bloomberg News

By

Tom Fairless

Tom Fairless
The Wall Street Journal
• Biography
• @TomFairless
• tom.fairless@wsj.com

Updated June 18, 2019 8:33 a.m. ET

SINTRA, Portugal—European Central Bank President Mario Draghi signaled Tuesday that the bank could roll out fresh stimulus as soon as its next policy meeting in July, sending the euro lower against the dollar and prompting an unusual rebuke from President Trump.

The comments, delivered at the ECB’s annual research conference outside Portugal’s capital, represent a clear statement of intent from Mr. Draghi, who is wrestling with the fallout from international trade tensions on Europe’s critical manufacturing sector and stubbornly low inflation.

Fresh ECB stimulus could support the region’s export-focused companies by weakening the euro against the dollar and other currencies, while binding the hands of Mr. Draghi’s successor for years.

Investors responded favorably, sending the euro down by more than half a cent against the dollar, to $1.1187. Yields on 10-year German government bonds fell to a fresh all-time low of minus 0.307% as investors digested the prospect of fresh bond purchases by the ECB.

But the move triggered an attack from Mr. Trump, who complained on Twitter that Mr. Draghi’s words would create an unfair advantage for European businesses.

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA,” Mr. Trump tweeted.

Mr. Trump is known for his criticisms about Federal Reserve policy but has until now largely kept out of the monetary policy decisions of other economies.

The European Union has long sold more goods to the U.S. than it has bought. But that trade surplus reached a record high of €139 billion in 2018, up from €119 billion in 2017. Figures released Tuesday showed the bloc’s surplus has continued to widen in 2019, although at a slower pace, amounting to €48.2 billion in the first four months of the year.

Advisers to President Trump have complained for years that the euro is grossly undervalued. The U.S. administration has threatened to impose tariffs on Europe’s auto exports unless the bloc strikes a trade deal with the U.S.

“European Markets rose on comments (unfair to U.S.) made today by Mario D!,” Mr. Trump tweeted. “They have been getting away with this for years, along with China and others.”

His comments raise the prospect of a “nightmare scenario” in which the ECB and Federal Reserve engage in a race to the bottom on exchange rates, creating economic damage that could aggravated by trade tariffs, said Frederik Ducrozet, an economist with Pictet Wealth Management in Geneva.

The ECB isn’t alone in considering fresh stimulus. The world’s major central banks have rapidly shifted gear in recent months, shelving plans to increase short-term interest rates and seeking instead to ease policy amid signs that the global economy is softening.

Many central banks in the Asia-Pacific region, including New Zealand and Australia, have already reduced interests in recent weeks. The Federal Reserve could signal on Wednesday that it is preparing to cut short-term interest rates, with bond markets pricing in two rate cuts this year.

The ECB is in a trickier position, though, because its key interest rate is minus 0.4%, almost 3 percentage points lower than the Fed’s.

In a sign of the headwinds Europe faces, exports from the eurozone to the rest of the world fell 2.5% in April compared with March, according to the European Union’s statistics agency Tuesday. Meanwhile, Germany’s ZEW index, a gauge of sentiment in the financial markets, fell by 19 points to minus 21.1 in June.

Mr. Draghi said ECB policy makers would consider “in the coming weeks” how to adapt its policy tools “commensurate to the severity of the risk” to the economic outlook.

In particular, the ECB could tweak the parameters of its €2.6 trillion bond-purchase program, known as quantitative easing or QE, to create room for fresh purchases, Mr. Draghi said. The bank could also cut interest rates further and introduce tools to mitigate the side effects, he said.

“The rate cutting genie is out of the bottle,” said Bart Hordijk, FX Market Analyst at Monex Europe. “This opens the trapdoor to lower levels” of the euro against the dollar.

That compares with a lackluster market reaction to the ECB’s latest policy move two weeks ago. Then, the ECB signaled it wouldn’t raise short-term interest rates through the middle of 2020, but investors were underwhelmed, sending the euro higher against the dollar.

Any move to restart QE would represent a sharp switch of course by the ECB, which only phased out the program in December and had until recently been guiding investors to expect interest-rate increases.

The ECB currently buys no more than 33% of the bonds of any individual government through its QE program. Increasing that limit could trigger fresh controversy and legal challenges in Germany, Europe’s largest economy, where officials have long been deeply skeptical of the ECB’s bond purchases.

Mr. Draghi warned Tuesday of “lingering softness” in forward-looking economic indicators, and said the risk of protectionism and vulnerabilities in emerging markets was weighing on Europe’s large manufacturing sector.

“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Mr. Draghi said.

The speech is Mr. Draghi’s last at the ECB’s Sintra research conference, Europe’s answer to the Fed’s Jackson Hole meeting, before his eight-year term ends in October. It indicates that the Italian’s impact could be felt for some time after he steps down, regardless of who European leaders name as his successor.

The horse-trading among European leaders over who will succeed the Italian could reach a climax at a summit meeting in Brussels on Thursday and Friday.

“Even a more hawkish new ECB president will have to take some time to untangle her/himself before further tightening can even be put on the agenda again,” said Mr. Hordijk.

—Paul Hannon in London contributed to this article

Write to Tom Fairless at tom.fairless@wsj.com

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2019-06-18 12:33:00Z
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Beyond Meat stock briefly trades above $200 after soaring 18% - CNBC

In this photo illustration, packages of Beyond Meat "The Beyond Burger" sit on a table, June 13, 2019 in the Brooklyn borough of New York City.

Drew Angerer | Getty Images

Shares of Beyond Meat soared as much as 18% in premarket trading Tuesday, briefly surpassing $200 per share.

At the beginning of May, the maker of plant-based meats priced its initial public offering at $25 per share. Excluding Tuesday's premarket surge, the company's stock is up 579% since its IPO, a market value of $9.9 billion.

Beyond's stock price remains well above the price targets of analysts, the highest of which is $123. No one on Wall Street recommends buying the stock anymore because of its hot streak. The stock has been gyrating as analysts have raised concern about its monster run and short sellers have taken an interest.

While the market for meat alternatives is growing more crowded as Tyson Foods and Nestle prepare to launch their own plant-based meat imitations, Beyond has been expanding and improving its own products.

Shares of Beyond closed up 12% Monday after the company said that it will start offering its Beyond Beef — plant-based ground beef — in grocery stores. The announcement followed the company's launch of a new, "meatier" version of its Beyond Burger in stores last week.

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2019-06-18 12:16:36Z
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Central Bankers Prove Again They're the Most Powerful Force in the Market - TheStreet.com

The market has been anticipating more dovishness from the Federal Reserve when it issues its interest rate decision and policy statement on Wednesday afternoon, but it is European Central Bank (ECB) President Mario Draghi who is driving the market higher here on Tuesday morning. Draghi stated that if the European economy slows and the inflation target is not met then "additional stimulus will be required." He went on to state that there still is considerable headroom to expand the ECB's asset purchase program.

When that clear message is coupled with the growing belief in the U.S. that the Fed is about to engage in a series of rate cuts, the buying pressure is automatic.

Over the past decade the single best market advice can be summed up in a very simple statement-"Don't fight the Fed."

Quite often it seems that central bankers are in competition with each other to cut rates, which weakens their currencies against other currencies. President Trump is addressing that issue in a tweet here on Tuesday morning:

"Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others."

The thing that is most important for us to know is that the central bankers are once again in a race to provide lower rates. There is no force more powerful than that. While many will question the wisdom of more stimulus 10 years after it first began, it probably is not a good idea to fight the price action.

The statements by Draghi are pushing the market to price in the Fed dovishness it is already expecting. The question we will need to confront is whether future rate cuts are being fully discounted. Many bears are convinced that this time the Fed is running out of ammunition and that rate cuts will not have the same positive impact they have had in the past. If that is so there will be some "sell the news" action as the Fed moves forward, but as I've written many times the market loves to love the Fed.

We have a positive open on the way but the focus remains on the Fed decision on Wednesday. Expectations for a dovish Fed are very high and we must wonder if the potential for disappointment is building.

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2019-06-18 11:48:24Z
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Libra White Paper Shows How Facebook Borrowed From Bitcoin and Ethereum - CoinDesk

With the long-awaited Libra white paper, Facebook is showing off its blockchain smarts, and making a bid for crypto credibility.

Released Tuesday morning, the 29-page paper describes a protocol designed to evolve as it powers a new global currency. More than a year in the making, the document opens by trumpeting the new blockchain’s ambitious goal:

“The Libra Blockchain is a decentralized, programmable database designed to support a low-volatility cryptocurrency that will have the ability to serve as an efficient medium of exchange for billions of people around the world.”

As a first step toward achieving the “decentralized” part, the protocol has been turned over to a new organization, the Libra Association, whose members will hold separate tokens allowing them on-chain voting rights to govern decisions about Libra.

“Over time, it’s designed to transition the node membership from these founding members who have a stake in the creation of the ecosystem to people who hold Libra and have a stake in the ecosystem as a whole,” Ben Maurer, Facebook’s blockchain technical lead, told CoinDesk in an exclusive interview.

In short, Libra is designed to be a high throughput, global blockchain, one that’s built with programmable money in mind but limits how much users can do initially as it evolves from prototype to a robust ecosystem.

Unlike many other blockchains, Libra seems laser-focused on payments and other financial use cases for consumers.

But the white paper itself seems geared to demonstrate both Facebook’s proposed advances to the science of distributed consensus and its appreciation for what has been built so far.

Indeed, over the last several months, many sources told CoinDesk they had visited Facebook to share their perspective on decentralized technology. The company has done a lot of homework.

And now it has created a new language for writing commands on its blockchain, called Move, and opened its software to public inspection.

“To validate the design of the Libra protocol, we have built an open-source prototype implementation — Libra Core — in anticipation of a global collaborative effort to advance this new ecosystem,” the white paper states.

“It’d be sort of presumptuous for us to say we’re creating an open environment and then say, ‘Well, but we’ve set everything in stone,’” Maurer told CoinDesk. “It’s a paper that requests feedback.”

Mix and match

Libra’s designers have picked what they see as the best features of existing blockchains while providing their own updates and refinements.

1. Like bitcoin, there’s no real identity on the blockchain.

From the perspective of the blockchain itself, you don’t exist. Only public-private key pairs exist. The white paper states: “The Libra protocol does not link accounts to a real-world identity. A user is free to create multiple accounts by generating multiple key-pairs. Accounts controlled by the same user have no inherent link to each other.”

2. Like Hyperledger, it’s permissioned (at least to start).

Initially, the consensus structure for Libra will be dozens of organizations that will run nodes on the network, validating transactions. Each time consensus is voted on for a new set of transactions, a leader will be designated at random to count up the votes.

Libra opts to rely on familiarity rather than democracy to choose the right entities to establish consensus in the early days. “Founding Members are organizations with established reputations, making it unlikely that they would act maliciously,” the white paper states. These are entities range from traditional payment networks (Mastercard, Visa) to internet and gig-economy giants (eBay, Lyft) to blockchain natives (Xapo) to VCs (Andreessen Horowitz, Thrive Capital).

3. Like tezos, it comes with on-chain governance.

The only entities that can vote at the outset are Founding Members. These members hold Libra Investment Tokens that give them voting rights on the network, where they can make decisions about managing the reserve and letting new validators join the network.

The governance structure is built into the Move software from the start, and like Tezos it is subject to revision over time. Updates will be essential as it adds members and evolves from what’s more like a delegated proof-of-stake (DPoS) system (such as EOS or steem) to a fully decentralized proof-of-stake ecosystem.

4. Like ethereum, it makes currency programmable.

In a number of ways, the white paper defines interesting ways in which its users can interact with the core software and data structure. For example, anyone can make a non-voting replica of the blockchain or run various read commands associated with objects (such as smart contracts or a set of wallets) defined on Libra. Crucially, Libra’s designers seem to agree with ethereum’s that running code should have a cost, so all operations require payment of Libra as gas in order to run.

Unlike ethereum, Libra makes two important changes in its smart contracts. First, it limits how much users can do on the protocol at first (the full breadth of Move’s features are not yet open). Second, it breaks data out from software, so one smart contract (what Move refers to as a “module”) can be directed at any pool of assets, which Move calls “resources.” So one set of code can be used on any number of wallets or collections of assets.

5. Also like ethereum, it thinks proof-of-stake is the future, but it is also not ready yet.

“Over time, membership eligibility will shift to become completely open and based only on the member’s holdings of Libra,” the white paper promises, describing a path to real permissionless-ness.

Meanwhile, the paper dismisses the approach of the blockchains with the longest track record (namely bitcoin), stating, “We did not consider proof-of-work based protocols due to their poor performance and high energy (and environmental) costs.”

6. Like Binance’s coin, it does a lot of burning.

Blockchains that build in purposeful burning of tokens became very influential last year. Binance, the world’s leading exchange, created the BNB token, with which users could pay trading fees at a discount. Binance led the way to token bonfires, regularly burning a significant portion of its profits paid in BNB.

Libra won’t use burning to enhance the value of its coin. Rather (as with collateralized stablecoins such as tether), tokens will be issued and burned constantly, as the association responds to demand shifts for its reserve, with no supply maximum or minimum supply.

7. Like coda, users don’t need to hold onto the whole transaction history.

A lesser-known protocol, Coda, was one of the first to make its ledger disposable. Users only need to hold a proof of the last block, which they can easily check on a smartphone to be sure they are interacting with a valid ledger.

Similarly, on Libra, “historical data may grow beyond the amount that can be handled by an individual server. Validators are free to discard historical data not needed to process new transactions.”

8. Like EOS, it hasn’t worked everything out yet.

EOS launched without its approach to governance well defined, which yielded complications down the road. Similarly, Libra promises to decentralize, but there’s nothing that inherently forces its members to do so.

Work in progress

Other matters are left undecided as well. For example, the storage of data.

“We anticipate that as the system is used, eventually storage growth associated with accounts may become a problem,” the white paper says. The document anticipates but does not define a system of rent for data storage.

It cites a number of examples of other open questions, such as how best to maintain security as more validators join the network, how often the pool of validators can change and how modules can be updated safely.

As the paper admits:

“This paper is the first step toward building a technical infrastructure to support the Libra ecosystem. We are publishing this early report to seek feedback from the community on the initial design, the plans for evolving the system, and the currently unresolved research challenges discussed in the proposal.”

Dream team

The Libra white paper is signed by 53 people. Though senior Facebook executives such as CEO Mark Zuckerberg and blockchain lead David Marcus are notably absent from the author list, the team that wrote the document looks to be one of the most-heavy hitting in blockchain history.

The signatories hail from nearly every continent and include Ph.D. students from Stanford, computer science professors, and artificial intelligence (AI) developers.

They include:

• Christian Catalini: The MIT professor was one of the first to study the economics of cryptocurrency alongside crowdfunding and tokenization. Catalini has written extensively for the Harvard Business Review and other publications.
• Ben Maurer: Facebook’s infrastructure engineer graduated from Carnegie Mellon University with a degree in computer science. He and CMU assistant professor Luis von Ahn built the reCAPTCHA service that Google bought in 2009. He is leading the team that built the Move programming language.
• George Danezis: A privacy engineer at University College London, Danezis was one of the creators of Chainspace and the Coconut protocol upon which Libra is based. He is currently a researcher at Facebook after the company bought his startup in February 2019.
• François Garillot: A machine-learning and AI expert who worked at Swisscom and Skymind.ai, Garillot focuses on distributed AI.
• Ramnik Arora: Arora spent time as an analyst at Goldman Sachs Investment Strategy Group as well as at IV Capital as a quant. His background is in finance and he has a master’s in computer science from Stanford and an undergraduate degree in the mathematics of finance.

Zack Seward and John Biggs contributed reporting.

Facebook’s major apps image via Shutterstock

Libra lines image via Facebook

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2019-06-18 10:00:00Z
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Top 5 Things to Know in the Market on Tuesday - Investing.com

© Reuters.

Investing.com - Here are the top five things you need to know in financial markets on Tuesday, June 18:

1. ECB flags more easing as Fed meeting kicks off

European Central Bank President gave his of further stimulus at a forum for central bankers in Sintra, Portugal, on Tuesday.

He indicated that, if no improvement in Eurozone inflation occurred, further interest rate cuts or asset purchases would be required.

Draghi’s comments come as the Federal Reserve kicks off its two-day policy meeting on Tuesday morning.

While markets do not anticipate any changes to be made to interest rates when the decision is announced on Wednesday, expectations are high that persistent worries over economic fallout from the U.S.-China trade war could prompt the Fed to open the door to rate cuts later this year.

Read more: - Darrel Delamaide

currently price in the chance of a rate cut in July at more than 80%, with the probability of two more cuts by the end of the year above 50%.

2. Stocks get boost from hopes of central bank easing

and U.S. futures turned positive after Draghi sparked hopes that central banks would ease policy to support a weakening global outlook.

The gained 0.9% by 5:49 AM ET (9:49 GMT) while, in the U.S., gained 53 points, or 0.2%, rose 7 points, or 0.2%, while traded up 36 points, or 0.5%.

The bullish sentiment for stocks did not dampen demand for safe-haven bonds as investors continued to bid up prices. The yield on the U.S. 10-year Treasury, which trades inversely to prices, slid 4 basis points to 2.05%, its lowest level since September 2017.

3. Oil prices drop for 2nd day ahead of U.S. inventory data

Oil prices fell again, weighed down by worries that global economic growth is being hit by the U.S.-China trade war, and by caution ahead of weekly data on stockpiles.

The American Petroleum Institute’s weekly report on is due at 4:30 PM ET . The reading comes ahead of the official report from the Energy Information Administration. Although expectations are for a draw of 2.0 million barrels, inventories surprised to the upside in the previous two reports.

Losses in oil were limited however by tensions in the Middle East after last week's tanker attacks as U.S. President Donald Trump confirmed reports last week and sent 1,000 troops to the region.

4. Boeing records zero new orders; confusion over 737 MAX rebranding

The ramifications of the two fatal crashes of Boeing’s (NYSE:) 737 MAX that grounded the model worldwide continued to make financial headlines.

Boeing failed to announce a single new order for any of its airplanes in the first day of the Paris Air Show, while rival Airbus recorded orders and options for 123 planes, according to CNBC.

Boeing Chief Executive Dennis Muilenburg had insisted that the priority at the Paris Air Show would not be orders, but rebuilding faith in its fleet.

Separately, after Chief Financial Officer Greg Smith told Bloomberg that he would be open to a name change to the 737 MAX, the company hurriedly told Reuters that it was not currently working on plans to change the name.

5. Facebook unveils Libra digital currency project

Facebook (NASDAQ:) announced further details on Tuesday of its planned digital currency Libra, which it expects to go live in the first half of 2020.

The Libra currency - designed as a blockchain network backed by other assets - will not be owned by Facebook itself. Mark Zuckerberg's company will lead a consortium developing it that will include payments companies Visa (NYSE:), Stripe and PayPal (NASDAQ:) to help spread acceptance. Other tech companies such as eBay (NASDAQ:), Lyft (NASDAQ:), Uber (NYSE:) and Spotify (NYSE:), are also reported to be on board.

Facebook will look to profit from the launch with a new subsidiary called Calibra, a digital wallet designed to store and exchange Libra.

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2019-06-18 09:51:00Z
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Waiting for the Fed; US housing data; Draghi speaks - CNN

The US central bank kicks off its June meeting on Tuesday. Its rate decision and press conference follow on Wednesday.

Investors want a clear signal from Chair Jerome Powell, who said two weeks ago that the Fed would act as appropriate to sustain the economic expansion in the United States.

That triggered a stock rally — though markets are now clamoring for more specifics. Expectations for a rate cut in July are now at 86%, according to the CME's FedWatch tool.

It's clear that central banks are leaning toward looser monetary policy.

European Central Bank President Mario Draghi on Tuesday signaled his willingness to boost monetary stimulus if economic conditions don't improve, causing the euro to fall.

2. Housing data: In the meantime, markets could move on a new batch of data.

US housing starts and building permits will post at 8:30 a.m. ET.

Investors will be watching closely after a surprisingly weak indicator on Monday. The Empire State Manufacturing Survey, which measures how factories in New York view the state of their business, fell much more than expected in June.

Economists expected the New York manufacturing industry to expand. Instead, the decline of the business conditions index was the largest on record, according to the New York Fed.

3. Markets rise: US stock futures point higher. The Dow is set to jump 60 points, or almost 0.2%, when markets open. The Nasdaq could rise 0.5% and the S&P 500 is poised to climb 0.3%.

European markets gained in early trading on the remarks from Draghi. France's CAC 40 leaped 0.9%. Germany's DAX rose 0.5%.

Stocks in Asia finished higher, bar Japan. The Shanghai Composite rose 0.1%, while Hong Kong's Hang Seng gained 0.9%. The Nikkei fell 0.7%.

The Dow closed up 0.1% on Monday. The S&P 500 inched up 0.1%, and the Nasdaq rose 0.6%.

Before the Bell newsletter: Key market news. In your inbox. Subscribe now!

4. Coming this week:
Tuesday: Adobe earnings; US housing starts; US Senate hearing on tariffs
Wednesday: Fed decision and press conference; earnings from Oracle (ORCL) and Barnes & Noble (BKS)
Thursday: US leading indicators; Bank of England rate decision; earnings from Darden (DRI), Kroger (KR) and Red Hat (RHT)
Friday: US existing home sales; Markit flash US manufacturing PMI

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2019-06-18 09:15:00Z
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Facebook announces Libra cryptocurrency: All you need to know - TechCrunch

Facebook has finally revealed the details of its cryptocurrency Libra, which will let you buy things or send money to people with nearly zero fees. You’ll pseudonymously buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using interoperable third-party wallet apps or Facebook’s own Calibra wallet that will be built into WhatsApp, Messenger, and its own app. Today Facebook released its white paper explaining Libra and its testnet for working out the kinks of its blockchain system before a public launch in the first half of 2020.

Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association including Visa, Uber, and Andreessen Horowitz who’ve invested at least $10 million each into the project’s operations. The association will promote the open-sourced Libra blockchain and developer platform with its own Move programming language plus sign up businesses to accept Libra for payment and even give customers discounts or rewards.

Facebook is launching a subsidiary company also called Calibra that handles its crypto dealings and protects users’ privacy by never mingling your Libra payments with your Facebook data so it can’t be used for ad targeting. Your real identity won’t be tied to your publicly visible transactions. But Facebook/Calibra and other founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable.

Facebook’s audacious bid to create a global digital currency that promotes financial inclusion for the unbanked actually has more privacy and decentralization built in than many expected. Instead of trying to dominate Libra’s future or squeeze tons of cash out of it immediately, Facebook is instead playing the long-game by pulling payments into its online domain. Facebook’s VP of blockchain David Marcus explains the company’s motive and the tie-in with its core revenue source, telling me “if more commerce happens, then more small business will sell more on and off platform, and they’lll want to buy more ads on the platform so it will be good for our ads business.”

The Risk And Reward Of Building The New PayPal

In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That’s another thing Facebook wants to be.

Yet existing cryptocurrencies like Bitcoin and Ethereum weren’t properly engineered to scale to be a medium of exchange. Their unanchored price was susceptible to huge and unpredictable swings, making it tough for merchants to accept as payment. And cryptocurrencies miss out on much of their potential beyond speculation unless there are enough places that will take them instead of dollars, and the experience of buying and spending them is easy enough for a mainstream audience. But with Facebook’s relationship with 7 million advertisers and 90 million small businesses plus its user experience prowess, it was well poised to tackle this juggernaut of a problem.

Now Facebook wants to make Libra the evolution of PayPal. It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers, and more long-lasting through decentralization.

“Success will mean that a person working abroad has a fast and simple way to send money to family back home, and a college student can pay their rent as easily as they can buy a coffee” Facebook writes in its Libra documentation. That would be a big improvement on today, when you’re stuck paying rent in insecure checks while exploitative remittance services like charge an average of 7% to send money abroad, taking $50 billion from users annually. Libra could also power tiny microtransactions worth just a few cents that are infeasible with credit card fees attached, or replace your pre-paid transit pass.

…Or it could globally ignored by consumers who see it as too much hassle for too little reward, or too unfamiliar and limited in use to pull them into the modern financial landscape. Facebook has built a reputation for over-engineered, underused products. It will need all the help it can get if wants to replace what’s already in our pockets.

How Does Libra Work?

By now you know the basics of Libra. Cash in a local currency, get Libra, spend them like dollars without big transaction fees or your real name attached, cash them out whenver you want. Feel free to stop reading and share this article if that’s all you care about. But the underlying technology, the association that governs it, the wallets you’ll use, and the way payments work all have a huge amount of fascinating detail to them. Facebook has released over 100 pages of documentation on Libra and Calibra, and we’ve pulled out the most important facts. Let’s dive in.

The Libra Association – Crypto’s New Oligarchy

Facebook knew people wouldn’t trust it to wholly control the cryptocurrency they use, and it also wanted help to spur adoption. So Facebook recruited the founding members of the Libra Association, which oversees the development of the token, the reserve of real-world assets that gives it value, and the governance rules of the blockchain. Each founding member paid a minimum of $10 million to join and optionally become a validatory node operator (more on that later), gain one vote in the Libra Association council, and be entitled to a share (proportionate to their investment) of the dividends from interest earned on the Libra reserve users pay fiat currency into to receive Libra.

The 28 soon-to-be founding members of the association and their industries, previously reported by The Block’s Frank Chaparro, include:

• Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
• Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
• Telecommunications: Iliad, Vodafone Group
• Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
• Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
• Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

Facebook says it hopes to reach 100 founding members before the official Libra launch and it’s open to anyone that meets the requirements including direct competitors to like Google or Twitter.

To join, members must have a half rack of server space, a 100mbps or above dedicated internet connection, a full-time site reliability engineer, and enterprise-grade security. Businesses must hit two of three thresholds of a $1 billion USD market value or $500 million in customer balances, reach 20 million people a year, and/or be recognized as a top 100 industry leader by a group like Interbrand Global or the S&P.

Crypto-focused investors must have over $1 billion in assets under management, while Blockchain businesses must have been in business for a year, have enterprise grade security and privacy, and custody or staking greater than $100 million in assets. And only up to one-third of founding members can by crypto-related businesses or invidually invited exceptions. Facebook also accepts research organizations like universities, and non-profits fulfilling three of four qualties including working on financial inclusion for over five years, multi-national reach to lots of users, a top 100 designation by Charity Navigator or something like it, and/or $50 million in budget.

The Libra Association will be responsible for picking recruiting more founding members to act as validator nodes for the blockchain, fundraising to jumpstart the ecosystem, designing incentive programs to reward early adopters, and doling out social impact grants. A council with a representative from each member will help choose the association’s managing director who will appoint an executive team, elect a board of 5 to 19 top representatives.

Each member including Facebook/Calibra will only get up to one vote or 1% of the total vote (whichever is larger) in the Libra Association council. This provides a level of decentralization that protects against Facebook or any other player hijacking Libra for its own gain.

The Libra Currency – A Stablecoin

A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line unicode character ≋ like the dollar is represented by $. The value of a Libra is meant to stay largely stable so it’s a good medium of exchange since merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies including the dollar, pound, europ, swiss franc, and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.

The Libra Association is still hammering out the exact start value for the Libra, but it’s meant to somewhere close to the value of a dollar, euro, or pound so it’s easy to conceptualize. That way, a gallon of milk in the US might cost 3 to 4 Libra, similar but not exactly the same as with dollars.

The idea is that you’ll cash in some money and keep a balance of Libra that you can spend at accepting merchants and online services. You’ll be able to trade in your local currency for Libra and vice versa through certain wallet apps including Facebook’s Calibra, third-party wallet apps, and local resellers like convenience or grocery stores where people already go to top-up their mobile data plan.

The Libra Reserve – One For One

Each time someone cashes in a dollar or their respective local currency, that money goes into the Libra Reserve and an equivalent value of Libra is minted and doled out to that person. If someone cashes out from the Libra Association, the Libra they give back are destroyed/burned and they receive the equivalent value in their local currency back. That means there’s always 100% of the value of the Libra in circulation collateralized with real world assets in the Libra Reserve. It never runs fractional. And unliked “pegged” stable coins that are tied to a single currency like the USD, Libra maintains its own value — though that should cash out to roughly the same amount of a given currency over time.

When Libra Association members join and pay their $10 million minimum, they receive Libra Investment Tokens. Their share of the total tokens translates into the proportion of the dividend they earn off of interest on assets in the reserve. Those dividends are only paid out after Libra Association uses interest to pay for operating expenses, investments in the ecosystem, engineering research, and grants to non-profits and other organizations. This interest is part of what attracted the Libra Association’s members. If Libra becomes popular and many people carry a large balance of the currency, the reserve will grow huge and earn significant interest.

The Libra Blockchain – Built For Speed

Every Libra payment is permanently written into the Libra blockchain — a cryptographically authenticated database that acts as a public online ledger designed to handle 1000 transactions per second. The blockchain is operated and constantly verified by founding members of the Libra Association who each invested $10 million or more for a say in the cryptocurrency’s governance and the ability operate a validator node.

When a transaction is submitted, each of the nodes runs a calculation based on the existing ledger of all transactions. Thanks to a Byzantine Fault Tolerance system, just two-thirds of the nodes must come to consensus that the transaction is legitimate for it to be executed and written to the blockchain. A structure of Merkle Trees in the code makes it simple to recognize changes made to the Libra blockchain.

Transactions on Libra cannot be reversed. If an attack compromises over one-third of the validator nodes causing a fork in the blockchain, the Libra Association says it will temporarily halt transactions, figure out the extent of the damaage, and recommend software updates to resolve the fork.

Transactions aren’t entirely free. They incur a tiny fraction of a cent fee to pay for “gas” that covers the cost of processing the transfer of funds similar to with Ethereum. This fee will be negligible to most consumers, but when they add up the gas charges will deter bad actors from creating millions of transactions to power spam and denial-of-service attacks.

Move Coding Language – For Moving Libra

The Libra blockchain is open source with an Apache 2.0 license and any developer can build apps that work with it using the Move coding language. The blockchain’s prototype launches its testnet today, so it’s effectively in developer beta mode until it officially launches in the first half of 2020. The Libra Association is working with HackerOne to launch a bug bounty system later this year that will pay security researchers for safely identifying flaws and glitches. In the meantime, the Libra Association is implementing the Libra Core using the Rust programming language since it’s designed to prevent security vulnerabilities, and the Move language isn’t fully ready yet.

Move was created to make it easier to write blockchain code that follows an author’s intent without introducing bugs. It’s called Move because its primary function is to move Libra coins from one account to another, and never let those assets be accidentally duplicated. The core transaction code looks like “LibraAccount.pay_from_sender(recipient_address, amount) procedure”. Eventually, Move will be able to create smart contracts for programmatic interactions with the Libra blockchain. Until Move is ready, developers can create modules and transaction scripts for Libra using Move IR, which is high-level enough to be human-readable but low-level enough to be translatable into real Move bytecode that’s written to the blockchain.

The Libra ecosystem and the Move language will be completely open to use and build, which presents a sizable risk. Crooked developers could prey on crypto novices, claiming their app works just the same legitimate ones, and that it’s safe since it uses Libra. But if consumers get ripped off by these scammers, the anger will surely bubble up to Facebook. Even though it’s tried to distance itself sufficiently via its subsidiary Libra and the association, many people will probably always think of Libra as Facebook’s cryptocurrency and blame it for their woes.

Using Libra In The Wild – Calibra

So how do you actually own and spend Libra? Through Libra wallets like Facebook’s own Calibra and others that will be built by third-parties, potentially including Libra Association members like PayPal. The idea is to make sending money to a friend or paying for something as easy as sending a Facebook Message. You won’t be able to make or receive any real payments until the official launch next year, though.

None of the Libra Association members agreed to provide details on what they’ll build on the blockchain, but we can take Facebook’s Calibra wallet as an example of the basic experience. Calibra will launch alongside the Libra currency on iOS and Android within Facebook Messenger, WhatsApp, and a standalone app. When users first sign up, they’ll be taken through a Know Your Customer anti-fraud process where they’ll have to provide a government issued photo ID and other verification info. They’ll need to conduct due diligence on customers and report suspicious activity to the authorities.

From there you’ll be able to cash in to Libra, pick a friend or merchant, set an amount to send them and add a description, and send them Libra. You’ll also be able to request Libra. It’s also likely that Calibra will offer an expedited way of paying merchants, liking scanning your or their QR code.

By default, Facebook won’t import you contact or any of your profile information but may ask if you wish to do so. It also won’t share any of your transaction data back to Facebook, so it won’t used to target you with ads, rank your News Feed, or otherwise earn Facebook money directly. Data will only be shared in specific instances in aggregated, anonymized ways or due to a request from law enforcement.

In case you are hacked, scammed, or lose access to your account, Calibra will refund you for lost coins when possible through 24/7 chat support. Given Calibra will likely become the default wallet for many Libra users, this extra protection is essential.

A Global Coin

If Facebook succeeds and legions of people cash in money for Libra, it and the other founding members of the Libra Association could earn big dividends on the interest. And if suddenly it becomes super quick to buy things through Facebook using Libra, businesses will boost their ad spend there. But if Libra gets hacked or proves unreliable, it could cost lots of people around the world money while souring them on cryptocurrencies. And by offering an open Libra platform, shady developers could build apps that snatch not just people’s personal info like Cambridge Analytica, but their hard-earned digital cash.

Facebook just tried to reinvent money. Next year, we’ll see if the Libra Association pulls it off.

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https://techcrunch.com/2019/06/18/facebook-libra/

2019-06-18 09:01:29Z
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