Stablecoin projects have typically been considered de facto currencies by many stakeholders in America’s nook of the cryptoverse, but that hasn’t stopped some officials from recently asserting that Facebook’s Libra stablecoin should be characterized as a security.
Now, U.S. Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert has waded into the discussion, noting in new remarks that the Libra is structured in an entirely different way than bitcoin (BTC), which the Commission considers to be a commodity in no uncertain terms.
The takeaway here, then?
Chairman Tarbert has suggested publicly for the first time that Libra’s backers will not be able to lean on bitcoin’s design in arguing Libra is a vaguely similar commodity. Accordingly, it’s still an open question — at least for Tarbert — as to what Libra will legally be when it actualizes, though the asset’s path to becoming a commodity may be murkier than its path to becoming a security.
“We Know How Bitcoin Works”
In an appearance on CNBC this week, the CFTC Chairman specifically contrasted the Libra and bitcoin, saying that the main crux of the legal uncertainty around the Facebook-backed stablecoin project is that it still remains to be seen how precisely the Libra will function.
To that end, Chairman Tarbert said:
“[Bitcoin and Libra] are fundamentally different products … and I think we also know how bitcoin works, as you say it’s been around for 10 years. So we have a very good idea how it works, and we’re able to classify that not as a security but as a commodity, whereas Libra is developing and there are a bunch of unanswered questions — and also the way that it’s structured, linking it directly to a set of national currencies — a very different product.”
With that said, it will be incumbent on Tarbert and other top regulators in the U.S. to settle on a position as the Libra continues to materialize.
We already know that the U.S. dollar, the euro, the British pound, the Japanese yen, and the Singapore dollar are the initial currencies poised to comprise the stablecoin’s reserves. What will surely factor largely on regulators’ minds regarding a possible security designation is how much Libra Association members like Facebook will directly benefit from revenues generated by the Libra.
The Elephant in the Room
In the Libra project, financial watchdogs across the world have feared that the Facebook-linked project would swoop in with a new world currency and then reap untold profits by coming between central banks and their billions of respective customers.
Whether such a doomsday scenario is feasible is anyone’s guess. But the mere possibility of it has made some come forward to argue that the Libra stablecoin should by governed as a security and thus face more onerous legal requirements.
One high-profile figure decidedly in that camp is Gary Gensler, the former head of the CFTC.
“As currently proposed, the Libra Reserve, in essence, is a pooled investment vehicle that should at a minimum, be regulated by the Securities and Exchange Commission (SEC), with the Libra Association registering as an investment advisor,” Gensler said in testifying before the U.S. Congress earlier this year.
Others have approached the subject more diplomatically. Back in September during separate congressional testimony, U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton declined to take a public position on Libra’s legal status yet.
“I’m not prepared to make a decision like that here,” Clayton said.
However, whatever happens next it appears in the least that the Libra Association will have to register as a Money Services Business (MSB) in America. That’s because FinCEN Director Kenneth A. Blanco just said his agency views all stablecoin issuers as money transmitters, which is another key thread to keep watching going forward.