In the Law of Libra, we sketched (1) Libra’s geopolitical posture & challenges; (2) Libra’s legal challenges.

Here, we turn to: (3) what Libra’s really up to & its potential; (4) what crypto must do to defeat Libra.

But first, let’s recall some shorthand.

L = Libra-the-currency

= Libra-the-currency Libra = Libra-the-project (inclusive of Calibra, Libra Association, etc.)

= Libra-the-project (inclusive of Calibra, Libra Association, etc.) Cartel = Libra Association (including current members, and future members)

= Libra Association (including current members, and future members) Libraneers ( Libders ) = Libra engineers (Libra builders)

( ) = Libra engineers (Libra builders) Lusers = Libra users (sorry, not sorry; the acronym writes itself; explanation follows)

= Libra users (sorry, not sorry; the acronym writes itself; explanation follows) OL = Open Libra

= Open Libra OLT = OL-the-token

1. Libra’s Launch & Potential

There are a few possible scenarios for Libra:

Libra fails to launch; L used solely as internal medium of exchange [including some intra-Cartel L-denominated settlements]; Libra/L as tool for fractional lending (Libra-as-Bank); L as global unit of account [“for-profit currency of currencies”]; L as [crypto] USGCoin/WallCoin/WestCoin (combining 2 to 4, above); L as commodity-backed money.

11.1 Will Libra Launch?

Given the vocal resistance to Libra among policymakers and opinion leaders, some analysts doubt that Libra will launch. Those analysts are wrong.

Libra will launch and will scale very quickly because of L’s unique product-market fit and unique technical capabilities, as set forth below.

11.2 What’s L’s Ideal Scaled Outcome?

While most analysts focus on the composition of L’s basket of fiat currency reserves (the “high-quality” fiats that will get L’s back), everyone in crypto knows that there’s actually no need for Libra to have a basket of fiat reserves.

The biggest jackpot for Libra lies in capitalizing on the core crypto insight that one can create valuable currency without any backing whatsoever, other than the artificial appearance of scarcity.

For now, however, Libraneers know that adding the promise of fiat-backing gives Lusers more faith in the stability of L. Pitching L as a sort-of stablecoin is also meant to assure buy-in from the governments who sell the fiat that L will supposedly be pegged to, and converted back to.

But L as a stablecoin seems to be a transition step, merely a way of getting through initial regulatory constraints. These constraints are the initial gates the Libra horse will likely pass through in early 2020.

After that, Libra’s ideal scaling outcome seems to be a progression through these 4 steps:

Scaling to 1B+ user economies ASAP (P2P transactions in L; gaming; etc.); Libra-based B2B economy where firms (including Libra cartel members) settle accounts in L; Through use & operation of time, establish L as a commodity-backed store of value; Because of demonstrable efficiency gains in (1) & (3), scale user rates from 2B to 51% of the world population, becoming the de facto global currency for the 21st century.

To reach these scaling goals, Libra’s core value proposition to Lusers will be that Libra offers the cheapest, easiest, and most equitable way to earn L and put food on the table. Libra’s “killer use” cases will be those that focus on “economic empowerment,” “marketizing the previously unmarketizable,” “monetizing the previously unmonetizable,” etc.

Given global economic realities and outlooks, the L-earning value proposition will be a necessity for billions of Lusers, especially if there are no comparable crypto earning opportunities elsewhere.

Let’s take a moment to assess how Libra might actually reach these scales.

11.3 Libra’s Product + Market Fit

As outlined in the Libra WP, the long-term business model for the Cartel is the creation of a third-party developer ecosystem.

“The association will work to foster the development of the Move language and determine a path for third parties to create smart contracts once language development has stabilized — after the launch of the Libra ecosystem.”

Essentially, the Cartel is trying to create a marketplace for markets. Analogizing to existing third-party developer schemes (iOS, Android, AmazonROS, etc.), the basic idea is to allow third parties to build out L-based services and markets.

At scale, the Cartel would operate as a meta-market-maker for other aspiring smaller market-makers. The Cartel ultimately controls the market-of-markets via internal policy-setting and governance mechanisms.

In terms of functionality, the Cartel does not need to promise anything that, say, Ethereum or other permissionless blockchains don’t already offer or plan to offer. The Cartel’s biggest carrot to developers is preferential access to a juicy market of billions of users.

Permissionless blockchain developer ecosystems have the vision, the tooling, and human resources necessary to build even larger networks-of-networks and markets-of-markets — at multi-scale. But today’s open blockchain ecosystems seem to suffer from: (1) misalignment in allocation of capital/incentives (especially, though not exclusively, w/r to compensating developers); (2) lack of community convergence around a user-adoption driver [no “killer app”]; (3) due to #1 & #2, slow user adoption rates.

developer ecosystems have the vision, the tooling, and human resources necessary to build even larger networks-of-networks and markets-of-markets — at multi-scale. But today’s open blockchain ecosystems seem to suffer from: (1) misalignment in allocation of capital/incentives (especially, though not exclusively, w/r to compensating developers); (2) lack of community convergence around a user-adoption driver [no “killer app”]; (3) due to #1 & #2, slow user adoption rates. Permissioned schemes like Libra are largely status quo maximizing (Marcus: “[Libra] allows the Free World of the Western nations to preserve the influence that in my opinion is necessary to maintain a good balance in the world.”) (emphasis added)). But they pay developers really well, and offer fastest pathways to 2B+ user scales and global impact.

Notwithstanding the important economic considerations above, the Cartel’s chief competitive advantage relative to blockchain incumbents is legal: (1) the ability to pursue multilateral regulatory arbitrage opportunities; (2) the ability to sustain substantial tactical losses ($B+ fines/sanctions); (3) effective externalization of legal risk back onto 3rd-party developers.

Incidentally, the chief competitive advantage of permissionless blockchains relative to permissioned blockchains is also legal, but in a more fundamental informational sense. See eg, #EthLaw; #PutLawOnChain.

11.4 What is Libra’s Core Market?

The power dynamic above gives a clearer view of Libra’s core “market” for purposes of product + market analysis. It reminds us, yet again, that Libra’s competition isn’t Ethereum or Cosmos or Polkadot, but rather Amazon, Tencent, Google, and Goldman Sachs.

Moving beyond the market for 3rd party developer ecosystems, we can finally define the Cartel’s core market as a global market for goods and services, eg, the real economy.

As a temporary step, leaving out finance is helpful for a few reasons.

First, to establish L as a “stable digital currency,” the Cartel will necessarily limit opportunities for atomic swaps, direct arbitrage, financialization, etc. that could in any way jeopardize L’s peg to its basket. This is a huge bridge/pass-through market opportunity for OL and other Libra bridges.

Second, putting aside L-based DeFi (or LiFi?) allows us to assess the most immediate market need for, and potential of, L. It allows us to explore how actual folks will be using L in day-to-day economic transactions.

Is Libra a player in global financial, securities, and monetary markets too? Of course, which is why we considered SEC and broader geopolitical implications in Law of Libra.

But because Libra’s ambition is far bigger and far more radical than just global financial markets, we have to take a moment to sketch out what an L-based real economy might look like.

11.5 Cartelization & Market Sharing: 2020–2025

The Cartel gives itself a 5-year permissioned buffer period (~2020–2025) from the launch of the ecosystem to the start of the transition to a hoped-for permissionless ecosystem. What can we expect in this first 5-year plan?

We’ve already narrowed the Cartel’s core market to the global real economy, populated by cartel members who offer thousands of unique goods and services markets (eBay Motors vis UberEats etc.). For ease of analysis, now let’s focus on FB’s core user base.

FB’s core asset is a network of 2B+ users hooked to the network through games, personal relationships, communities, etc. Right now, FB’s primary market is a global advertising/data market that monetizes information about these users and networks. For present purposes, we can think of the ad market as a largely mature one (though advances in AI, VR/AR open up lots of new revenue opportunities for FB’s core business unit).

From FB’s perspective, the biggest growth opportunities lie in expanded goods markets (FB Marketplace, Buy & Sell Groups), and services markets (Uber/AirBnB-killers/etc.). FB faces stiff competition in these markets from incumbents (Amazon, eBay, Alibaba,etc.). Furthermore, many incumbents in these markets are already in the Cartel (eg, Uber, Lyft, eBay). Thus, FB is unlikely to directly compete in these markets in 2020–2025.

However, the persistent market threat from Amazon, Alibaba, and others means that any number of interesting marketplace mergers and spinoffs is possible at any time (eg, eBay buying out FB’s market-making business units to reduce antitrust pressure on FB, among other things).

11.6 Novel Real Cartel Economies: 2020–2025

Because of the volatile political climate, heightened antitrust scrutiny, respect for fellow Cartel-members’ toes, and need to protect and expand existing fiat-denominated revenue streams, the Cartel is likely to coalesce around several novel use cases and applications for L, especially various #EarnCrypto and #EarnL opportunities that are complementary to core fiat-revenue streams.

For instance, the Cartel could choose to pilot relatively discrete use cases, like Spotify (a Cartel member) L-based artist rewards, tipping/subscription models, copyright/royalty tracking, etc.

(a Cartel member) L-based artist rewards, tipping/subscription models, copyright/royalty tracking, etc. For narrative control (to emphasize how Libra “creates jobs, businesses, and opportunities”) the Cartel will need to quickly produce several new Libracorns (with easy-to-justify $1B+ valuations). Existing and expanded sharing-economy use cases seem like a strong fit here (eg, Omni).

(with easy-to-justify $1B+ valuations). Existing and expanded sharing-economy use cases seem like a strong fit here (eg, Omni). Cartel members will also likely invest in numerous ‘niche’ global markets with unproven valuations in dozens of currently underserved spaces. Parallel investment in traditional for-profit, non-profit, and hybrid use cases will give the Cartel maximum narrative freedom to tout the transformative and disruptive potential of Libracorns, even if many eventually fail. (Applying L to unproven markets and use cases also allows Libra to problematize and pluralize L-based valuation methodologies, from inception. This would give the Cartel more deniability in subsequent antitrust/taxation inquiries.)

If/when these pilot markets produce fruit, Cartel members may compete with one another to cross-invest, or buy especially lucrative Lapps outright. At that point, it is reasonable to expect a second wave of antitrust scrutiny (focusing on cross-ownership, interrelationship of operations, coordination & effective control between Cartel members, etc).

11.7 Formal Diversification as Risk Mitigation

Depending on the legal and operational structure of the Cartel following the first wave of antitrust scrutiny (2020–2022) and potential second wave of antitrust actions (2023–2025), we might see the Cartel take meaningful steps to diversify investment opportunities beyond Cartel members. In 2020–2025, this might including potential direct buy-in opportunities for individuals (unlikely) or select institutional investors (eg, elite university endowments, more likely than individual buy-in, though overall likelihood is still less than 50% in this time period)).

For legal risk mitigation purposes, it is reasonable to infer that any structural changes to intra-Cartel governance processes would likely be accompanied by any number of other formal “democratization” and “flattening” moves/gestures, as that would materially incentivize greater public/stakeholder/regulatory buy-in. There is no reason to speculate on those potential formal moves, except to say that recent reports of potential departures of Cartel members (including PayPal’s potential departure on October 4, and reports about IBM’s potential interest in joining) underscore the need for clear formal on-ramps & off-ramps.

For instance, the Cartel could formalize new tokenized securitization schemes (and making these [ECOs = External Cartel Offerings] available to the broader public under any number of euphemisms [EOT = Equal Opportunity Tokens] and channels [airdropped to Calibra, or to one’s WhatsApp inbox]). The key point here is the Cartel is directly incentivized to:

incubate several Libracorns; support those Libracorns’ experiments with new forms tokenization/securitization; underwrite a newsworthy amount of trickle-down gain that will flow to early individual investors.

The Cartel will be able to easily sell this boom narrative of innovation and new value-creation. This is admittedly speculative analysis, but it’s precedent-based (90s IPO boom; VC raise-exit cycle; ICOs; Binance lottery; etc.).

Another likely regulatory vector in this time period will be taxation. Unlike antitrust inquiries, we can expect a far more pragmatic framework of engagement between the Cartel and global tax authorities.

It is reasonable to expect the Cartel to externalize political contests on taxes back onto public authorities (Libra: “Hey China, EU, US, Florida, San Francisco, you fight amongst yourselves regarding global, regional, local fiscal and taxation coordination and keep working on multilateral taxation treaties like you’ve been doing for decades, and we’ll keep eating our Double Dutch Sandwiches and Irish Inversion Pies. kbye!”).

These antitrust/taxation realities present opportunities for crypto, which are discussed below.

11.8 Case Study of an L-Based Real Economy

What would a Libracorn look like to give the Cartel the narrative upper hand?

As a thought experiment, let’s introduce Legan — a Libra-based vegan economy.