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About the talk
Speaker: Christian Catalini
Chief Economist, Libra Association. Co-Creator of Libra. Head Economist at Novi (Facebook), on secondment to Libra. Theodore T. Miller Career Development Professor at MIT, and Associate Professor of Technological Innovation, Entrepreneurship, and Strategic Management, MIT Sloan School of Management (on leave) Christian's main areas of interest are the economics of digitization, entrepreneurship, and science. His research focuses on blockchain technology and cryptocurrencies, the economics of equity crowdfunding and startup growth, and the economics of scientific collaboration. Christian is one of the principal investigators of the MIT Digital Currencies Research Study, which gave access to all MIT undergraduate students to Bitcoin in the Fall of 2014. He is also part of the MIT Initiative on the Digital Economy and the recently launched Digital Currency Initiative. He holds a PhD from the University of Toronto (Rotman School of Management), and MSc (summa cum laude) in Economics and Management of New Technologies from Bocconi University, Milan. In 2009-10 he was a visiting student at Harvard University. His work has been featured in Nature, Science, the New York Times, the Wall Street Journal, the Economist, WIRED, NPR, Forbes, Bloomberg, TechCrunch, the Chicago Tribune, the Boston Globe, VICE news and the Washington Post among others.View the profile
Everyone, it's a pleasure to be back here to discuss an update on a project. Libra. And Kristen cavallini, one of the co-creators of Libra and a professor at MIT currently on leave as we go further distinction. So as you know, Libra is not an independent organization where Facebook is actually only 127 members, that means about less than 4% off the governance and voting off the entire organization. There's a number of different entities contributing to the growth and success of the
ecosystem. On the other side. Know he is a wallet that will be provided by Facebook and will integrate with the Libra Payment Systems. I want to draw the distinction since it will be used for the content of the talk, which will actually Focus. Andy Grammer, as I mentioned to you and those that attended last year, the journey is being really a journey around developing a new model for trust in digital path. And this, when he goes back to work that I had done with my father, just began a really thinking through, you know, what does it mean that you can use watching
Technologies and new forms, new forms of interaction? He can, I make interactions and new bottles for for Mark and design and digital platforms and the time we were focused on two key cost, the customer education and the cost of networking. The second one is is is very closely related to to DF 1st on infrastructure. That can support payments and also later Financial applications on a global scale. Now there's there's at least three main objectives in the economic design of
Libra. The first one is to build trust in an efficient medium of exchange and payment Network and it's often talked about across a number of different topics from macroeconomic policy. The second one is, you know, that the resulting Market on top of the leader protocol and ensuring that there is competition and interoperability the last one. I want to spend on today is when the trust in the governance and future evolution of the network. And some of the journey that we've done since the original white paper update,
Cindy, cup design of Libra from, of course, the introduction of single currency stablecoins. And expand on that second kind of changing positions or permission. Plus, I wanted the same time trying to replicate The Core Academy properties that we I think all of us appreciate the information with networks within within the framework of improvements to the Libra Reserve in. This is kind of Grease spurred by extensive feedback that Bieber is received from reports. Like the G7 stablecoin report or the FSB work on Dollar store with the
trusting in the efficient payment Network, as I was mentioning. Now, there's two types of Iraq once there was The single currency stablecoins, think about something like that but also the network is retaining their concept of emoji, Currency coin, be our original white paper, the new I'll be always will be essentially a digital composite of some of the single currency stablecoins available on the network and I'll tell you a bit more. Now that works, this will actually nabel
a number of Deshawn use case. As you may know, the original goal was to support cross-border payments like remittances a number of domestic abuse cases in the relevant markets, also become possible. Original white paper. Each one of The single currency stablecoins will be fully back to 141. And I actually just some details are now it will be over collateralized users consumers and businesses will interface with the reserve supported by a competitive market for resellers, and it changes that will be buying and selling these coins
to. And from the reserve the overtime, this new approach also allows maximum flexibility and central banks around the word to to think about, I'll do want to integrate with something like that are you know, their efforts in upgrading payment systems and more broadly. The journey towards hybrid, CBBC synthetic. CBBC her wholesale. See some of these public sector. F words become available. Doing the spaces that enables a range of new functionality and range of new features for low-cost options. Instantaneous domestic
and cross-border. When they're not yet, it is now essentially just a dish or composite think of it as aggregating together and fix them in a weights, a fixed amount. Some of the single currency stablecoins available now, because each one of The single currency stablecoins is fully back as a result, the multi-currency Libra, It's also not really a separate acid from The single currency stablecoin will not be mean to them, burned by the reserve and we just staple that and
stapled by some of the participants operating on the network. This design is actually similar to the special drawing rights when Thing by the IMF and overtime. The goal is really to pass over set in control of the composition of potentially to a neutral, third party, such as the IMF or the group of central banks involved. In in the particular composition, any one of the components for the value of the currency, BR with respect to any local currency, to countries that say, the network has a Libra Dollar in a Libra and someone is trying to send money
from the US to Europe that transfer could start any bread dollars would go through. Like your wallet. Exchange of financial intermediaries are from the conversion. This is not happening, actually on Chene. And the receiver would receive it in a gyro and spend it on Merchants In their own country is the receiving to receive this. In any one of the currencies of, why would they use maybe the multi-currency is because you can think of it as an option with the respect to a number of potential jurisdiction? And you will see you're looking at two countries that do not have.
When did the person receiving for a temple that remittance Flo wants to spend it, that would convert it into using a provider? Cuz you see this new design is much more flexible and enables a range of all kind of new use cases on on Ogden. African braiding in different jurisdictions. The other F-word that's currently underway as we adding additional protection into the sign of the Libra reserve and he trying to break new ground into the design of the report as well as the FSB report issues and questions around. What happens when, you know, stablecoins,
experienced extreme Market situation very much. Like to know what, what happened to Jacoby outbreak, or in 2008 of the liver Reserve is now designed really mitigate the stress and allow for body preservation of coins over here. We really important the best practices from the financial sector think about the Basel framework and other relevant Frameworks that are used to really think about a number of potential losses that something like that. Still going could incur losses from credit risk Market risks or changes in interest
rates operational risk. And so, this is something that we, we did a lot of work. And in the last month working towards a framework that can read for my stronger and teas to coin holders and businesses operating on North Course, all of this when he starts with transparency in order to build the reserve needs to be in the wrong order than a regular basis about the backing, he needs to be transparency, communicated to the public. So that will be a really important
in the car. There's also as it was mentioning work on the regulatory Capital requirements and Regulatory buffers in here is that the buffer that the Libra Reserve will grow as assets growing risk may be because there's a changing Market condition or as the reserve size itself grows in time without getting into too, many of the technical details, this is pretty standard. One requirement, that Libra will be expected to maintain at all times and additional Capital buffers. You know,
like any other business to retained earnings are through Capital raised from from its investors. The awesome people ask, I will be able to support you. No stable Coins & Currency, is that they will have to cover discuss through additional revenue streams to be additional transaction. Other fees that are introduced on the network if there is positive interest on the acid, of course that can be used effects and other expenses often operate smoothly. I think about dinner cost and then daughter dimensions of that time
and will not receive and return a positive return from from from the reserve. Brother a lot of additional work that is currently underway from reinsuring competition and transparency in the market for designated dealers. These are after all the key interface between the echo system, operating a black walnuts exchanges and unders and the reserve forces for ending Redemption under a very extreme market conditions, make the best Advantage, off flows, like
remittances without worrying about interference with monetary policy. And read the future that we're trying to build towards is one where as soon as I was mentioning, the public sector is a tour. Operating there are two gs systems or opening up some of those interfaces. Or is exploring anything that looks like a synthetic CBC results, BBC, or post. LCBC, Libre can integrate with those efforts and then stop even operating, I reserve the focus of the network is in delivering payments and functions
around payments and financial services not running. A reserved person is assets are not fully digital and programmable on the public sector side today. No, I I mentioned this actually in, in my presentation last year, but a lot of Kiki mentioned in one of the reasons why we landed on this particular design for for pilot financial services in and payments on top of it. As you probably know today, different types of poems of concentration, concentration
of capital among some of the participants and he's trying to strike a balance. Wear it when you think about why are the members of course, but they're also stove into classic nothing, a snake problem, that traditional purpose Netflix fix the reputation on the line and Safe in some of the places where you could think it's actually the most vulnerable part of the open technology standards and around, but it's open and transparent membership criteria for for providing services and eventually the
extremely low switching costs for consumers and businesses relying on the network, low barriers to entry and an extremely high interoperability at the end of it building interoperability is probably one of the most important mission of this project if you want to come or competition would lead to lower prices, better quality and and also the development of a number of new services and business models that are difficult to predict today. During the last part, I want to talk a little bit more about one of the most complex dimensions of trust, which
is trust in the governance and future evolution of off the network as was mentioned in before, you know, Facebook that incubator originally the other on this project is only 127 members so can can only start but won't vote out of 27 in total. And as I mentioned, I was in the past and independent strong Association is really key prerequisite for the success of this project founding members. Of course I needed to drive utility in adoption. A secure did not require anybody that our services and really bootstrap. This
kind of market for delegation and reputation are around the project to disaster organization and distributed governance that will encourage individuals and organizations to build on the same ecosystem, reinforcing increasing fragmentation which is a known problem. In payment in financial services on layers. On top of the base layer, the shirt maker by everyone and doesn't contribute enough resources. Back to the investment in what really constitutes a public public infrastructure.
No, we began the journey by describing a shared vision and in this of course, would have needed a new technology to transition to network graffiti parmish. Verma has one of the concerns that we heard from Regulators. About that Vision was that, you know, we were introducing a number of additional Provisions as good at fighting Financial crime. Regulators were concerned that if you're fully transition play, Know what we discovered through this process was also that we believe it is still possible to replicate the key economic properties
of permission assistance, through actually traditional Market design and auction design, and such a transparent and competitive marketing process for the provision of services membership. In the India station calls. I've have a number of advantages in terms of Troopers latency and and no need for wasteful competition. For example, there's additional good features around finality, but at the same time, you know, as a condom is one of the things that worries me. The most about BFG is that, of
course, the security depends on the quality and the incentives of those initial valladares. I sent you trusting them with the operations of the network and Alignment around all of this issues is, it isn't can be very heart of courses is a public good, is a shared infrastructure. And so, you often run into a tension between some of the short-run objectives of the needs of the network and its early days when you're trying to bootstrap it and any frees utility versus more long-range objectives. So allowing for additional additional government
members to come and compete with existing processes. Are we trying to drive a ballast to ensure competition for services in governance? Within a framework? Where will need to be? Now, the good news is that we can really learn from where I can design and other economic systems that we facing our problems where you do have in your trusted said, are you also trying to introduce Market forces? I wouldn't. The competition is a prerequisite again for building, you know how you infer operable efficient and Innovative payment
system. So I need to be able to compete with the existing players within the system for the provision of payments and financial services. This is about to businesses and consumers, security reliability of the network and also introducing less correlated failure, risk. The district officials reacted participation in the governance and evolution of this project is achieved by the internet for his model after an open Technologies standard. But I really require working on this market-driven process that will allow the new qualified members.
And compete with the existing one. And this is where your novel concept that were bringing anything to this face. Look like the nun. Transition to permission has this become the key stuff for ensuring that you do have an open and transparent and competitive market for for resources. And then you forgot this applies to build the face of expanding membership in your position on some renewing membership and I'll give you a little bit more details in a second. The goal is reach out for new entrants ability to
compete on all of this Dimensions at what are the same time, ensuring that Beaver cessation can meet. And, you know, I called this dog is on a regulatory expectations membership, where there's a series of open calls and declares a membership. Slots will be available in the dimensions, like, your application recover things. I've basic information about the applicant, at the real ensure that it needs to compliance bar as well as information with the APA, can be able to successfully run a secure and stable end
of the ecosystem. Of course, you know, to ensure that their funding for Optics and other dimensions of gas station are they could also be a financial contribution in this. You could use this information to membership contributions score. This is used often in our account application processes and this is actually use in a number of our location mechanisms the deck. This would ensure that you know any potential entrants to use this information to decide if they want to make an investment in
the Libra start becoming a or maybe even becoming a member at Central and Slauson entrance. Also, if you could have renewed the membership set and ensured that it can really keep innovating and an advancing a overtime of course would have to be made into consideration and the antitrust and competition issues as well. Of course, requirements for participating in any of this type I want to spend the last few minutes to kind of go back to the broader Mission, which has been unable to equal access to financial services.
I believe can make a massive progress, both in domestic markets by the station cross-border too many people today. I really don't have access to basic payments and financial services. And the irony of it is that often there's large segments of the population to one and nine. People globally are often supported by funds that, they're receiving a remittance, from family and friends, I need the address baiting factors also. People with less money than to pay more for financial services today. And, you know, the World
Bank estimates are that you probably heard before is approximately 7% cost for sending money across borders. So that means You're you're you're spending a lot of money and some of this cross-border flows about transaction, also take time. So these are not immediate transfers and some cases can be multiple days before someone receives money. On the other hand, I believe that the current situation has made this even more singing where you seen a number of governments struggle, even in seamless payments are in getting money, in the end of their citizens within
a reasonable time frame. And the situation is likely to be more aggravated. As we enter can have a very long but then she painful economic recovery phase. Now the good news, I'd mention. It's the last time is that? Yes there are approximately 1.7 billion people without a bank account without access to low-cost payments and financial services. But a large number of these have access to mobile phone in the majority of that sucks that has access to some form of data. And so there is a lot that can be done. I bring you a network. That's true, interoperable that favors competition. And
can allow a number of startups across the globe at winter with new services and a new options for consumers. I look forward to your question and thank you very much for your attention.
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