Mercado Pago (a Latin-American e-commerce giant), Visa, eBay, Stripe, and, Mastercard have become the latest five companies to officially depart from Facebook’s Libra stable coin project, following PayPal, according to several news outlets, the firms themselves, and the Libra Association website.
The five firms’ decision to leave comes a week after PayPal became the first company to announce it was pulling out. The firms were five of the 28 inaugural Libra Project members.
Ride-hailing giants Uber and Lyft, as well as cryptocurrency custodian Anchorage, are said to be sticking with the Libra Association for now, according to BBC and CNBC.
But now world bodies are warning against Facebook’s Stable Coin.
Careful: This thing could blow
A report by the G7 group of nations warns cryptocurrencies like Libra pose a risk to the global financial system.
In fact, the report names 9 major risks posed by such digital currencies.
“Even if Libra’s backers address concerns, the project may not get approval from regulators,” the report warns.
The G7 taskforce includes senior officials from central banks, the International Monetary Fund (IMF) and the Financial Stability Board, which coordinates rules for the G20 economies.
The report believes “global stable coins” have the potential to “scale rapidly” which pose a range of potential problems, including endangering financial stability if users suddenly suffer a “loss of confidence” in the digital currency.
Libra and other stable coin issuers aim to reach, among others, 1.7 billion unbanked and underserved consumers who could benefit from wider access to financial services.
Why the exodus?
Every major US payment processor has exited the association. (The final remaining payment processor is PayU)
Today, October 14th, was when all the founding members were set to convene in Geneva for the first-ever Libra Council meeting. So if anyone had doubts, the best time to get out was before the charter was signed.
According to the Verge, this group of companies had particular reason to get cold feet.
“With the exception of eBay, they’re all payment processors, which means they have specific regulatory requirements dealing with fraud, money laundering and sanctions enforcement. Governments were starting to realize that Libra might make it hard to meet those requirements — and payment processors, in particular, would end up on the hook,” said The Verge.
“That’s a scary thought for payment processors, who could see their central businesses wiped out by regulatory action,” it added.
But for venture capital firms, and service providers like Lyft and Uber, these entities don’t face the same pressure from regulators, so there isn’t the same benefit to ducking out.
The other issue is that Blockchain-backed coins work best as a self-contained system, but problems often arise in the places where they overlap with conventional banking.
In the initial vision, Libra handed those compliance issues off to payment processors, hoping Visa and Mastercard would be able to handle the intricate compliance requirements involved in trading dollars for Libra, according to The Verge.
“But after Friday’s mass exodus, that’s no longer an option, and the same regulatory tangle that scared off the initial group of processors is likely to discourage others too,” it said.
The exits, combined with intense scrutiny from lawmakers, represent a huge blow to the initiative and leave its future uncertain.