“Users will not directly interface with the reserve. Rather,
to support higher efficiency, there will be authorized resellers who will be
the only entities authorized by the association to transact large amounts of
fiat and Libra in and out of the reserve. These authorized resellers will
integrate with exchanges and other institutions that buy and sell
cryptocurrencies to users, and will provide these entities with liquidity for
users who wish to convert from cash to Libra and back again.”
“That sounds a lot like creation and redemption in an ETF!”
To be precise, he thinks it resembles an actively managed ETF invested in a basket of currencies, likening it to the WidsomTree Emerging Currency Strategy Fund (CEW), although with Libra there are no fat fees charged by the fund manager, the interest goes to the Libra Association not the holder of the underlying instrument and of course ETFs are regulated as opposed to the unreleased Libra which, as yet, no one is clear how to regulate it.
And borrowing from the work of David Weisberger, he says he would not be at all surprised if the US Securities and Exchange Commission (SEC) does not come to the conclusion that Libra should be under its purview.
Nadig sees that as a deliberate ploy on Facebook’s part.
He concludes that filing Libra as an ETF, if that were required by the SEC, would be easy to comply with.
Discovering a brave new tokenised world
What has got him even more excited is the trading aspect, which would be the tricky part re. an ETF filing. Nadig is really talking about tokenisation without using the word:
“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.”
Nadig has just discovered tokenisation – and so likely are many others in the ETF and mainstream financial world.
As Nadig puts it himself, it is a radically improved way of “moving
a security from pocket A to pocket B”.
He’s actually agnostic on where Libra ends up from a regulatory perspective and it is irrelevant to his discussion whether it is actually listed as an ETF. It’s the debate its has opened up that matters most.
What Libra is not
In trying to define what Libra is, he dismisses the notion that it is analogous with the IMF’s special drawing rights (SDRs) instruments because, unlike Libra, they are not transactional.
It’s not strictly a stablecoin or debt instrument either,
says Nadig – the interest is paid to the Libra Association members not holders
of the Libra coin per se.
In fact, it’s closer to M-Pesa, although ultimately that is
a mobile banking system and not a global digital asset transactional platform
as envisioned by Libra/Facebook.
Whatever the regulators and politicians do, something like Libra coming to fruition is only a matter of time:
“This may make Libra seems like a far-fetched, not-gonna-happen idea, but I don’t think so. I really think it’s just a matter of timing, not feasibility.”
He sees the advent of Libra opening up a “conversation about
the role of money in the modern world”.
He concludes: “For that reason, as much as I’m wary of
Facebook, in this case, I for one welcome our new crypto overlords.”
Put that another way, the financial supervisors and
politicians in Washington DC and elsewhere are behind the curve.