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spiras

Why libra is inferior to xrp

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I am glad you started this post.  Your points are well made.  The more I think about this project the less elegant solution it looks. ( I look forward to the opinions of others as I do not have any expertise in how finance works)

1. A stable coin that  is pegged to four currencies is no longer a stable coin, it is a "forced compromise coin" and its price will always be a fudge in which some people pay a price

2. This is a sophisticated digital correspondence banking that needs funding and there is no bridging asset.  Will they try to compensate by creating a whole new layer of programming that fudge their way though the complex accounting and funding anomalies? 

3. Perhaps someone can explain how the coins will be circulated from hot spots to cold spots.  With XRP this is done through using Market makers.  Obviously these coins are going to end up accumulating in China.  So how do they get back to countries running a deficit with China?    Is there some sort of market maker system?

4.  SWIFT transfers 5 trillion a day.  Facebook have cash funds of 40 billion.  This is not a lot of equity.  Where are the trillions to fund this scheme going to come from?

XRP is elegant.  It has been thought through and the anomalies are not there because the bridging asset is always priced in the exchange currency in real time.  MMs move it to where it is needed.  The equity grows by revaluing XRP as the system grows.  There is always enough equity.

The more I look at Libra the more it looks like an idea that was put together on the back of an envelope by a group of greedy CEOs that want a piece of Riplenet's pie but don't have the resources and technical know how to build the infrastructure a bridging asset requires.  The truth is that the Internet of Value needs the ILP and a bridging asset.  Anything that tries to work outside those parameters is going to be isolated and not be able to integrate with the standards everyone else will be using. 

 

Edited by Julian_Williams

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4 hours ago, spiras said:

I realize this is simplistic and there is a lot more involved, but this post is long enough already.  

Good post. Not too simplistic. I think I'm going to call it "McLibra" from now on. Yes, there is potential for them to get to the masses because their already established infrastructure makes it easy even though everybody knows it's not good for them. In fact it's so bad for them governments around the world are likely to shut it down because they don't like the competition! ;)

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5 hours ago, spiras said:

I'm going to try to keep this as simple as I can.

Libra is a stable coins tied to multiple currencies.  That doesn't work. I'll explain below.

 

But first, we have to understand that stablecoins, by definition, don't increase in value, which limit incentive/reward to buy, hold or use.

In a simple example of stable coins with just one peg, when the supply is insufficient for a purchase, simply more stable coins are printed, price doesn't change.  The amount of money taken in is held in reserve until cash out.  This creates a risk that the entity holding the reserves is honest, doesn't take a commission, and invests or stores the reserve safely. 

Someone has to hold the reserve and perform work to keep a ledger and process transactions.  This isn't free, so the management costs will constantly have to be paid by someone, will have to be taken from the reserve holding, a fee has to be charged,.or the reserves invested for growth. (See risk above).  Simply, someone has to pay.  On top of all this, the underlying peg currency has to remain stable itself (not going to happen).  If all people want to cash out of a stable coin, someone is going to lose.

Now, let's complicate the stable coin by tying it to multiple pegs.  In this case, let's say we're tying the stable coin to the value of USD, EURO, JPY, YUAN.  Now we have to decide how the value of the coin will be derived. 

Example 1: Let's give each currency 25% of the weight of the value of the stable coin.  

In ANY scenario, of multiple pegs, one will perform worse than the others.  The people who would MOST benefit from a stable coins would be those that denominate in the worst performing peg.  The people would would LEAST benefit are those that denominate in the best performing peg.  Thus, people from the WORST pegs will put in the most, to the reserves.  Over time, the reserves (money that was taken in) will be disproportionately from the lowest performing peg, causing a gap in the reserves held and the stable coin market cap.  Because the value of the stable coin is determined by a equal average of the pegs, Not everyone will be able to cash out.  And this doesn't even take into account the costs associated with the maintenance of the coin or the transaction processing or the risks of an entity holding/investing the reserves.

Example 2: The stable coin value could be derived from the value of the assets held in reserve.  This would allow the reserves to meet the market cap value (everyone could cash out) despite the imbalance in peg performance over time.

Needless to say, the costs associated with the operations, combined with the imbalance in peg performance  would lead to a guaranteed loss of value over time by all stable coin holders.  What would be the point?  Just to send money to your Facebook friends?

 

On the other hand - When the supply isn't available  for an XRP purchase, the price has to go up to exactly the amount needed to entice holders to sell enough to meet the demand.  Same with selling.  It's an open market with price based on supply and demand.  Almost no cost and no reserves that need to be managed.  No central party needed to hold reserves.  The value is in the utility, potentially increasing over time as new use cases are created.  This could be a good place to hold your money to maintain or grow value; however, not without risk.

Stable coins guarantee loss.  All risk, no reward.  The only people who make money here are those who control and/or manage the system.  Clearly this is why Facebook wants to creat a centralized copy of XRP for their own gain, when a decentralized version already exists.  If Facebook really wants to improve the world, why do they need to reinvent the wheel into a system that benefits themselves?  Why not just build on what's already out there?

Open market coins, such as XRP have risk of loss, but also come with potential reward.  Choosing the right open market coins to invest in- those that can demonstate utility, can will lead to value growth to the asset holder - rather than the giving the value gains to the system or people who control the system.

I realize this is simplistic and there is a lot more involved, but this post is long enough already.  

The error I see in your reasoning is conflating a stable coin with a pegged currency. As far as I can see, Libra is not pegged at all but instead has a floating exchange rate, even against the currencies backing it. This is key. Backed doesn't mean pegged. Stable coin is a misnomer in my opinion, more aspirational than descriptive. All it means is that it will likely be somewhat stable because of the more established forms of wealth that are backing it. But unless it can be exchanged 1:1 with any given currency (correct me if I'm wrong) then your criticism is irrelevant. A good analogy might be to think of the value of an ETF share. Each share is backed by real world capital assets formed by a basket of companies, but the ETF shares still have a floating value against the underlying shares that form it, this is because both are highly influenced by speculation and are each subject to differing speculative forces, even while one may make up the other. So while the overall value of an ETF share may be rising, the relative value of one of the stocks making it up may be falling. In other words the sum is greater than the parts.

Your criticism concerning custodianship and risk however, seems spot on. This is the big problem with Libra that I can see. There is still risk because it cannot be cashed out in any sensible way, as OP pointed out, other than simply selling it. Which begs the question, can a currency even be called backed if you can't cash out? My concern though is that the market will not care. Look at tether. How many people really actually tried to cash it out? Even when people doubted the veracity reserves, they still treated it as if it were fully backed. 

Edited by Montoya

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42 minutes ago, itcdominic said:

Libra will be shunned by the crypto Maxi's just like XRP...they will not view this as a true crypto either.

Will that matter? Libra will be integrated into every transactional endpoint of numerous services with a userbase of ~2bn.

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48 minutes ago, JA8 said:

Will that matter? Libra will be integrated into every transactional endpoint of numerous services with a userbase of ~2bn.

it will in the short term,  but like XRP,  will not be held back in the LONG run.

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22 minutes ago, T800 said:

Facebook said its about targeting people that don't have access to a bank account. 

 

Given the data breach how many Americas will use it? 

In spite of the data breach, Facebook reported 2.4 billion monthly active users (MAU) in Q1 2019.

This is up 2.5% from 2.3 billion in Q4 2018; and up 8.2% year-over-year (YoY) from 2.2 billion in Q1 2018.

If they have lost trust, the user numbers still reflect the popularity / convenience of using Facebook for billions of users.

Edited by JA8

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Just now, JA8 said:

In spite of the data breach, Facebook reported 2.4 billion monthly active users (MAU) in Q1 2019, which is up 2.5% from 2.3 billion in Q4 2018.

Using the Facebook app and using the Facebook coin are two different things.  

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1 minute ago, T800 said:

Using the Facebook app and using the Facebook coin are two different things.  

I’m not sure that they are. I imagine the experience and on-ramps will be relatively seamless.

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Just now, JA8 said:

I’m not sure that they are. I imagine the experience and on-ramps will be relatively seamless.

Makes no difference even if it is seamless.  KYC maybe involved and other details they may need before you can use it. 

Do you want to hand over your information ?

Maybe 100M people will use it. 

 

There has already been government talk that it should not happen

 

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