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There’s a Second Token: A Breakdown of Facebook’s Crypto Economy

Actually, Facebook is launching two cryptocurrencies.

As part of Tuesday’s big reveal of the social network’s ambitious plan to create a global fiat-backed blockchain currency, Facebook said that in addition to Libra, the project will also issue a “Libra investment token.”

Unlike Libra – a currency that will be broadly available to the public – the investment token is a security, according to Facebook. As such, the token will be sold to a much more exclusive audience: the founding corporate members of the project’s governing consortium, known as the Libra Association, and accredited investors.

And while Libra will be backed by a basket of fiat currencies and government securities, interest earned on that collateral will go to holders of the investment tokens.

As previously reported ahead of the official announcement, each of the 28 companies that Facebook recruited to run validating nodes as founding members of the consortium invested at least $10 million for the privilege. The investment token is what they received as a financial reward.

But that reward will only be meaningful if the network takes off.

“Because the assets in the reserve are low risk and low yield, returns for early investors will only materialize if the network is successful and the reserve grows substantially in size,” Facebook said in one of a series of documents that supplement the long-awaited Libra white paper.

Further, the tokens will give holders proportional clout in the early governance of Libra. An investor who buys the tokens doesn’t have to run a node, but unless they do, they don’t get to vote as members.

Governance

The Libra Association, a not-for-profit organization based in Switzerland, will have several layers of governance, the most powerful of which is a council, on which each member organization will have a representative.

“The council delegates many of its executive powers to the association’s management but retains authority to override delegated decisions and keep key decisions to itself, with the most important ones requiring a greater than two-thirds supermajority,” according to another supplementary document released by Facebook.

As mentioned, to become a member, the initial investors must put in at least $10 million. In addition, a business must meet at least one of several elite criteria, such as being on a list like the Fortune 500.

For every $10 million invested, a member gets one vote, subject to a cap of 1 percent of total votes, in order to prevent the concentration of power in any single entity. However, the financial reward remains proportional to the amount invested no matter how much.

The council will be responsible for standard governance matters, such as appointing an executive team for the association, led by a managing director, and a board of directors to oversee them; setting the top executive’s compensation; and managing the currency’s underlying reserves.

But the body will also have final say over technical questions, such as activating new features to the protocol and resolving situations “where compromised validator nodes have resulted in many signed versions of the Libra Blockchain,” according to the document.

While Facebook’s newly created Calibra subsidiary will be a consortium member with a council seat, the social network stressed it won’t be in charge for long.

“Once the Libra network launches, Facebook, and its affiliates, will have the same commitments, privileges, and financial obligations as any other Founding Member,” the company said. “As one member among many, Facebook’s role in governance of the association will be equal to that of its peers.”

Reserves

The exact components of the basket of assets securing Libra are to be determined. But broadly, it will be “structured with capital preservation and liquidity in mind,” according to the social media giant.

Importantly, while the coin has been described in early press coverage as a stablecoin, Facebook noted that “from the point of view of any specific currency, there will be fluctuations in the value of Libra.”

Rather than a fixed peg, the idea is to prevent bitcoin-style volatility:   

“The makeup of the reserve is designed to mitigate the likelihood and severity of these fluctuations, particularly in the negative direction (i.e., even in economic crises).”

In this way, Libra will function more like a currency board such as Hong Kong’s rather than a central bank.

The collateral will consist of “bank deposits and government securities in currencies from stable and reputable central banks,” according to Facebook. The latter will be limited to “debt from stable governments … that are unlikely to experience high inflation.”

Rather than putting all its debt eggs into any single basket, no matter how creditworthy, “the reserve has been diversified by selecting multiple governments, rather than just one.”

To make sure it can easily raise cash by selling this paper, it will all be “short-dated securities issued by these governments, that are all traded in liquid markets.”

While the composition of the basket may change over time, Facebook said, the currency will always be fully backed, discouraging “runs on the bank” that can happen with fractional reserve institutions.

Compliance and privacy

To comply with anti-money-laundering regulations that require traceability of funds, transactions on the Libra blockchain will be unencrypted, “like many other blockchains, so it is possible for third parties to do analysis to detect and penalize fraud,” Facebook said.

In other words, it appears that there will be no use of cryptographic mechanisms such as zero-knowledge proofs, used to obscure transaction details in privacy-focused coins such as zcash.

If that raises privacy concerns (particularly given Facebook’s own reputation with user data), the company is offering similar assurances to those Satoshi Nakamoto gave in the 2008 bitcoin white paper.

Image from the bitcoin white paper.

“Individuals or organizations will operate on the Libra Blockchain through user accounts, which are dissociated from their real-world identity,” Facebook said. “Only data relevant to each transaction, such as the public address of the sender and receiver, the timestamp, and the transaction amount, are recorded and publicly visible.”

Data storage

Appearing to address concerns about Facebook’s track record with user data, company literature released Tuesday was blunt: “Calibra will not share account information or financial data with Facebook, Inc. or any third party without customer consent,” adding:

“Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook, Inc. family of products.”

There are, however, “limited cases” where data may be shared, the document states, relating to the company’s “need to keep people safe, comply with the law, and provide basic functionality to the people who use Calibra.”

As part of its user experience, the app will allow people to import Facebook contacts to their Calibra wallets, to make sending funds easy. However, this feature will be opt-in, rather than automatic.

The company does intend to use aggregated Facebook data to inform upgrades for its product, including regional usage statistics for monitoring adoption rates.

“If someone fraudulently gains access to your account and you lose some Libra as a result, we’ll offer you a refund,” the release said. Password recovery will also be a feature, Facebook officials told CoinDesk.

Though the release noted that Facebook is “still early in the process of developing Calibra,” the product’s aim is clear: to be “safe, private and easy to use for everyone.”

Nikhilesh De contributed reporting.

source:.coindesk

Crypto

Brazil’s Stringent Crypto Tax Regulations Pushes Crypto Exchanges Out

Brazil is undergoing a bit of a crypto revolution. Like most countries, the government is trying to stem the growth of cryptocurrencies through strict rules. However, unlike a lot of countries with this problem, the Brazilian government made some significant progress in regulating the cryptos space. Last year, the government formally opened an inquiry into some of the most rampant crypto scams in the country and immediately adopted policies to police the cryptocurrency industry and the companies that exist within it.

Tax Obligations are Too Much to Bear

Now, some of the exchanges based out of Brazil want to shut down under the threat of significant fines and taxes being imposed on them. According to a Bitcoin.com report, two popular exchanges have announced plans to close their doors, as progressive crypto regulations from the government have started to affect them. 

One of the exchanges was Acesso Bitcoin. In an interview with local news source Portal do Bitcoin, exchange chief executive and co-founder Pedro Nunes said, “After the Federal Revenue Service introduced these rules, we noticed a significant decrease in the traded volume. We also feel that the market has cooled off for smaller exchanges.”

 The second exchange, known as Latoex, was recently issued a suspension order by Brazil’s Securities and Exchange Commission. If it doesn’t comply with this suspension, the firm could be charged 100,000 Brazilian real (about $23,150). Instead of risking this, the exchange has decided to shut down as well. 

The Crypto Space is Experiencing Growth Pains 

Currently, Brazil doesn’t have sweeping cryptocurrency regulations. However, all exchanges in the country are made to fall under the jurisdiction of the Normative Instruction No. 1888- a regulatory guideline that was issued by the Brazilian Department of Federal Revenue on May 3, 2019. Under Brazilian law, individuals who make crypto transactions worth more than 30,000 Brazilian reals in exchanges outside the country- or who make crypto transfers over that value without going through exchanges- will need to report their operations. 

As for customers of Brazilian exchanges, there won’t be a reporting obligation because the exchanges themselves are required to report all their operations. Any exchange found to be in violation of these laws could face hefty fines. 

Exchanges being hit hard by reporting obligations are fast becoming the order of the day for the global crypto space. Several exchanges across the European Union have already shut down due to the requirements of the Fifth Anti-Money Laundering Directive (AMLD5) and the travel rule from the Financial Action Task Force (FATF), both of which require exchanges to provide information on their customers who make transactions above certain thresholds. 

While it’s understandable that governments will want to stem the growth of crypto-enabled criminal activity, there’s also the fact that companies are being put out of business and innovation in the cryptos pace is being stifled. Surely, there could be a middle ground for everyone.

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BT360 CRYPTO WALLET AND WEBSITE GO DARK, USERS FEAR EXIT SCAM

The Rundown

  • $1 Million Worth of Crypto Potentially Lost
  • The Blame Game
  • The Affluent Owner
  • Fingers Crossed Its Not Another Crypto Scam

Israeli crypto wallet and quasi-exchange, BT360 has left users concerned for their funds after its website and social media accounts were taken down. Clients have also claimed that wallets created by BT360 cannot currently send funds out, causing some to fear an exit scam.

$1 MILLION WORTH OF CRYPTO POTENTIALLY LOST

While not the largest exchange in the world, investors are assumed to have each invested thousands of shekels, with a shekel currently being worth around $0.30. This could see the damages reaching as high as the equivalent of $1 million.

With the website being offline, along with social media account silence and error messages in the mobile app, many clients are fearing the worst.

THE BLAME GAME

The listed CEO of BT360, Erez Fishler has a history of bankruptcy filings and has previously been suspected of fraud.

When contacted, Fishler claimed to be simply an employee of BT360, but hadn’t been working there for a few weeks. He said that he had had a recent confrontation with the company’s owners over some problematic crypto transactions and resigned.14 BTC & 30,000 Free Spins for every player, only in mBitcasino’s Crypto Love Affair! Play Now!

I did not have access to the company’s bank accounts and I was not authorized to sign. I did not know if the balances in the company account to which the funds were deposited were identical to the balances in the wallets. I do not know what is kosher and what is not, and did not suit me to continue the role in such a way.

He also claimed that the company had affluent family owners, and supposed that they would handle the matter.

THE AFFLUENT OWNER

BT360’s owner, Eyal Sade, suggested that Fishler was guilty of mismanagement, saying that the company’s compliance officer and attorney were currently investigating “to see what Fishler did within the system.”

However, he seemed to suggest that the current media silence and lack of crypto wallet functionality would indeed be addressed in time.

We decided to shut down the servers so there will be no further actions we can’t follow. Once we get answers we can bring the system back up and the platform will continue to work. All customers talk to me directly and receive answers and they have to wait patiently and things will work out.

FINGERS CROSSED ITS NOT ANOTHER CRYPTO SCAM

Unfortunately, exit scams are still a reasonably common occurrence in the crypto-space, with a BitMEX fund trader absconding with $380k of his investors BTC just before Christmas.

Let’s hope that this issue is resolved positively for BT360’s users, as owner Sade promises.

Positive outcomes are not unheard of, and community pressure can often help. In early December, former Dash Senior Advisor, MooCowMoo, resurfaced to return investors cash, following a lengthy disappearance and radio silence.

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Why TRON, XRP, and Cardano (ADA) just plunged 12% in a severe altcoin correction

Major alternative cryptocurrencies (altcoins) including TRON, XRP, and Cardano (ADA) dropped by more than 12 percent against the USD on the day. The move follows a strong 50 to 90 percent upsurge within a span of two months.

A big upsurge is often supplemented with a big correction

In the past two weeks, while the Bitcoin price increased by 14 percent, TRON, XRP, and Cardano surged by around 30 percent on average.

As the Bitcoin price reclaimed $10,000, which is widely considered to be a psychological level by traders, the cryptocurrency market started to rebound. Traders started to become more confident in the bullish market structure, taking the market cap of the entire cryptocurrency market from $256 billion to $307 billion in about ten days.

The market quickly became overbought, leading most technical indicators like the relative strength index (RSI) and other momentum oscillators to show signs of an imminent pullback.

In an upward trend, altcoins tend to front-run bitcoin and surge faster than the dominant cryptocurrency. In the latest bull trend, for instance, the price of Ethereum started to rise first with bitcoin following the price trend of Ethereum.

During a bearish trend or a pullback, altcoins tend to depend on bitcoin for short-term price movements.

Although the bitcoin price briefly surged past $10,000 on the day immediately after the opening of the CME bitcoin futures market, it demonstrated a steep sell-off right after it. Consequently, altcoins like XRP, TRON, and Cardano pulled back, recording significant volatility in a short period.

Josh Rager, a cryptocurrency technical analyst, said that after the daily close earlier today, the bitcoin price was at a crucial support level at $9,800.

As Bitcoin struggled to hold $9,800 and corrected to the $9,600s, even major altcoins with relatively high liquidity in the likes of XRP plummeted with little to no reaction from buyers.

Rager noted:

“Bullish – nice 4 hr & daily close to end Sunday, bounced at key area of $9800 (HVN). Bearish – still forming lower highs/lower lows on intraday charts, CME price pullback from $10,075. less premium Still needs to hold $9800+ on HTF or we’ll still visit $9,300 to $9,550.”

bitcoin xrp
Bitcoin briefly rejected the $9,800 support level, causing altcoins like XRP to plunge (source: Josh Rager Twitter)

If the Bitcoin price rebounds in the short-term, altcoins are likely to be the biggest beneficiaries of it.

Why altcoins like XRP fell so hard

However, due to extremely high funding rates, XRP fell by 22 percent within 24 hours, causing havoc in the market.

A funding rate on margin trading platforms like BitMEX and Binance Futures refers to a system that lets long holders or short sellers pay each other based on the state of the market.

If there are more longs in the market, long holders need to pay short-sellers a certain percentage of their position every eight hours to bring balance in the market. In the case of XRP and Ethereum, funding rates exceed 0.1 percent, which means long holders need to pay short-sellers a significant amount of money to leave their positions open.

That places pressure on long holders to adjust or close their positions, causing a deeper correction in the market.

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