Facebook vs. Binance: Competition, Regulation & Comparison


Both Facebook and Binance have proposed their own form of global digital currency. Which will overcome the regulations first and reign supreme?

The ‘New Gold Rush’

In 2017, the price of cryptocurrencies soared, the crypto space saw more publicity than ever before, and many institutions began to show interest in the new technology. This ‘New Gold Rush’ was most evident in people’s new-found interest in Bitcoin, the digital currency, and Initial Coin Offerings.

Quickly, new – and arguably inexperienced – investors jumped at the opportunity to buy these digital assets. However, soon after in early 2018, the crypto market turned bearish and dropped back down to as low as 15% of its all time high. It appeared the digital gold rush was over.

Nevertheless, even though the public hype had lost steam, many projects continued to develop their blockchain-based ideas. Regardless of the market valuation, these projects still believe the technology has the potential to shape the future.

Facebook’s Libra

“The Association plans to raise the number of total members (or partners) to 100, each contributing an investment of at least US$10 million as part of the reserve backing the token.”

Background of Libra

As the rush to buy Bitcoin was occurring, the administration at Facebook decided to delve deeper into this novel technology and tapped Morgan Beller to head up their own blockchain division.

In May of 2018, Facebook Messenger’s Vice President, David A. Marcus, was reassigned to work alongside Beller in the new blockchain division. Just over a year later, on June 18th, 2019, Facebook formally announced its intention to launch their own cryptocurrency: Libra.

Now, their blockchain division has over 50 dedicated engineers collaborating, led by David Marcus, Morgan Beller, and Kevin Weil.

Libra: A Global Currency

Facebook’s new token, Libra, will be overseen by the Libra Association, founded in Geneva, Switzerland. The intention of the token is to serve as a “stable [coin] global cryptocurrency built on a secure network.”

The Association was founded with 28 initial members, all major companies in diverse sectors including payments, telecommunications, blockchain, and numerous others. The Association plans to raise the number of total members (or partners) to 100, each contributing an investment of at least US$10 million as part of the reserve backing the token.

The Libra Reserve would hold these funds to raise trust in their token’s intrinsic value. In September, Facebook announced the reserve basket would be made up of: 50% US dollar, 18% Euro, 14% Japanese yen, 11% Pound sterling, and 7% Singapore dollar.

All payment transactions would be recorded on the Libra Blockchain, allowing for a trusted and easily accessible global currency. However, unlike Bitcoin, Libra would not be decentralized. The Association’s members would be responsible for maintaining the nodes, serving as a central bank for the token.

Regulation Backlash

US regulators and politicians had serious concerns about the cryptocurrency. Maxine Waters, Chairperson of the US House Committee on Financial Services, and Jerome Powell, Chair of the Federal Reserve, both openly stated their concerns about Libra.

Their concerns included the lack of regulation in the crypto space, the potential for money laundering, and the potential risk to the financial stability of countries as the primary reason for requesting a moratorium from Facebook.

Bruno Le Maire, French Finance Minister, also took a negative stance toward the digital currency and stated they would not allow its development in Europe. Further, its asset-backed nature could allow for a more stable digital currency than Bitcoin and Ethereum.

However, Libra could also be used as a tool for collecting and analyzing users’ purchasing data. The company stated they would use a secondary company, Calibra, to manage payments so users’ Facebook profile information would not be linked to their transactions. Yet, they also provide users with a ‘friend finder’ option that would bypass this security measure and link the two sets of data.

Binance’s Venus

“…Venus was to be an ‘independent and autonomous, regional version of Libra”

Background

In August of 2019, Binance announced a plan to initiate their open blockchain project, Venus. The goal of this project is to develop localized ‘stablecoins’ and digital assets around the world. Stablecoins refer to coins pegged to fiat currencies (like the USD, GBP, etc.)

With the launch of their Binance Chain in July of 2017, they assured their chain had already succeeded at creating secure and robust stablecoins that were pegged to Bitcoin (BTCB) and the British Pound (BGBP). Binance will provide full-process technical support, a compliance risk control system, and a multi-dimensional cooperation network. All to build Venus by leveraging its existing infrastructure and regulatory establishments.

In their Chinese statement, Binance went on to encourage governments, corporations, and other technology and cryptocurrency companies to join them in an open alliance. This is part of their initiative to empower developed and developing countries to issue their own new currencies and discuss the infinite possibilities of the digital world together.

Further, they stated Venus was to be an “independent and autonomous, regional version of Libra.” Thus, while Libra aims to be a new global digital currency, Venus’ objective is to aid countries in having a greater financial autonomy.

Venus: An Open Blockchain Project

Though Venus may appear as a direct competitor to Libra, Binance’s CEO Changpeng Zhao stated in a tweet that Venus is not meant to compete with Libra at all, as their motivations are entirely different, but ideally they can coexist.

Similarly, Binance co-founder Yi He addressed the aim of the project in a statement to news website CoinDesk:

“We believe that in the near and long term, stablecoins will progressively replace traditional fiat currencies in countries around the world, and bring a new and balanced standard of the digital economy. We hope to achieve a vision, that is, to reshape the world financial system, allow countries to have more tangible financial services and infrastructures, protect their financial security and increase the economic efficiency of countries.”

Libra or Venus: Which Will Reign Supreme?

Although both projects came out with their proposals at a similar time, they do diverge in their overall objectives. Thus, this competition may not have any clear winners anytime soon. One this is for sure, however, that stablecoins pose an interesting solution for the future of finance.

As is the public intention of Binance’s Changpeng Zhao and Yi He, Venus aims to create numerous digital currencies for countries, upgrading their current fiat systems. Libra, on the other hand, seems to want to create their own currency altogether, to reduce fees and likely become a significant player in the ‘global-currency game.’

It’s precisely for this reason that we’ll likely see significantly less regulatory backlash on Binance’s project. Nevertheless, the future remains unclear and we’ll just have to wait and see.

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