The white paper for Facebook’s proposed Libra currency has been quietly updated, according to a Dec. 10 article written by Georgetown University law professor, Chris Brummer. Aside from expected amendments reflecting the revised Libra Association members, the biggest change is the removal of dividends payable to those early investors.
Change in use of interest on reserve assets
While the initial Libra white paper published in June specified that interest on the reserve assets would be used to cover system costs, keep transaction fees low, support growth, and pay dividends to the early investors i.e. Libra Association members, mention of dividends has now been removed, so it now reads:
“Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, and support further growth and adoption.”
Dividend removal alleviates potential conflict of interest
The problem with awarding dividends, and potentially the reason for the change according to Brummer, is that it created a potential conflict of interest between Libra Association members, and end-users of the currency.
To encourage uptake of Libra, the reserve assets with which they are backed should be stable. However, if dividends are paid from the interest on these assets, this gives an incentive to load the reserve with higher-risk assets.
This in turn would reduce trust in and uptake of Libra, because the supposed stablecoins could lose their value.
Avoiding branding as securities
There is also the possibility that the changes are in some way addressing concerns that Libra may be classified as a security.
As CryptoX reported earlier this month, two lawmakers in the United States would like Libra and other managed stablecoins to be defined as securities. However, Brummer believes that this is an unlikely outcome, due to the very nature of stablecoins not increasing in value.
