Most Interesting ETF Filing Ever: Libra

June 25, 2019

Big Hill To Climb, But Here’s A Path

Even then, though, questions related to the 1933 Act, potential classification as demand notes, and considerations related to CFTC regulation of the token as a swap still exist. One way or another, it won’t be easy.

And as it stands now, the baseline interpretation of what’s actually written in the filing (I mean “white paper”) is simply: “Libra is just CEW in sheep’s clothing.”

So what does that mean?

For starters, I don’t think that means it’s dead. I actually think it’s much more interesting. If Libra is, at core, just an ETF, it’s a relatively easy cleanup to file it as such, formally.

The ’40 Act bits aren’t hard; the hard part is trading. By definition, Libra is intended to be exchanged 1-to-1. The whole point is that I’ll be able to use Libra the same way I use cash. In that sense, having a wallet with 100 Libra in it is supposed to be very much like having a wallet with a $100 PayPal balance (or if you’re transacting in Chinese renminbi, Alipay).

Libra’s Exciting Element

Libra envisions making these transactions seamless and registered on the blockchain. So for example, right now, I don’t have a way to hand Amazon a share of the SPDR S&P 500 ETF Trust (SPY) in exchange for a bunch of books and sunscreen and groceries. Libra envisions a world where I can directly do just that.

This is why it’s so exciting. Not because I want to use a lot of Libra in my day-to-day life, but because it opens up a regulatory discussion about a radically improved way of moving a security from pocket A to pocket B.

Whatever regulatory solution the Libra consortium comes up with (and there’s going to be a lot of money pushing for a solution), it strikes me that it could have far-reaching implications well beyond digital currencies. Any solution that works for Libra nearly has to work for CEW, or SPY or any other ETF.

After all, ETFs are just baskets of things that we value. And the only reason we have to trade through brokers and exchanges, and settle overnight through the National Securities Clearing Corp. is because the system evolved that way from the Great Depression, one deprecated slip of paper at a time.

Other Tilts At This Windmill

Discussions abound of all the other ways folks are trying to crack this nut—to become “the new dollar” in consumers’ or corporations’ lives. Special drawing rights (SDRs) get brought up in almost every conversation.

SDRs are issued by the International Monetary Fund, and are, like Libra, an actively managed basket of securities. But that’s where the similarity ends: They’re nontransactional, and it’s the transactional piece of this that’s where all the interesting bits are.

What else do we know about Libra and its place in the crypto firmament?

Well, it’s not “its own currency” in the way bitcoin (and its countless variants and copycats) are. Bitcoin is a nonfiat currency; a kind of digital gold whose primary value (to me) seems to be its disconnection from central banking and other governmental oversight.

That’s fine for what it is, but the inherent value fluctuations and basis risk that come with standing apart from fiat backing will always be a huge barrier to entry to bitcoin gaining traction as a primary means of exchange.

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