UBS on Facebook's Libra: 'We have more questions than answers'

(FILES) In this file photo taken on May 1, 2018 Facebook CEO Mark Zuckerberg speaks during the annual F8 summit at the San Jose McEnery Convention Center in San Jose, California. - Facebook is leaping into the world of cryptocurrency with its own digital money, designed to let people save, send or spend money as easily as firing off text messages."Libra" -- described as "a new global currency" -- was unveiled June 18, 2019 in a new initiative in payments for the world's biggest social network with the potential to bring crypto-money out of the shadows and into the mainstream. Facebook and an array of partners released a prototype of Libra as an open source code to be used by developers interested in weaving it into apps, services or businesses ahead of a rollout as global digital money next year. (Photo by JOSH EDELSON / AFP)        (Photo credit should read JOSH EDELSON/AFP/Getty Images)
Facebook CEO Mark Zuckerberg speaks during the annual F8 summit in San Jose, California. Photo: Josh Edelson/AFP/Getty Images

Big questions remain about governance and the regulation of Facebook’s new cryptocurrency project Libra, according to UBS.

“We are neither bullish nor dismissive of the Libra project given a lot of details about it are needed first,” UBS said in a note sent to clients this week.

“Despite its unique characteristics, we have more questions than answers on Libra at this stage given the uncertainties around its governance and regulations,” a team of analysts led by Sundeep Gantori wrote.

READ MORE: Facebook's cryptocurrency project is called Calibra, will launch in 2020

Libra has been spearheaded by Facebook (FB), but is backed by over 25 top tech and payment giants, including Visa (V), MasterCard (MA), PayPal (PYPL), eBay (EBAY), Spotify (SPOT), and Uber (UBER). All the backers will be equal members of the Libra Association, a new Geneva-based not-for-profit set up to govern the project.

A key question highlighted by Gantori and his team include how members of the Libra Association “plan to align their interests and work together,” as well as how they will move to a more decentralised system in the future.

Another unknown is “how the currency can be independent without major privacy and security challenges,” UBS wrote.

Gantori and his team also note, “It is not clear to us how Libra can comply to regulations across the globe given the initial pushback.”

Libra’s launch met an immediate backlash from regulators and politicians in the US and Europe. The G7 nations launched a joint inquiry into the risks of new cryptocurrencies like Libra and Rep. Maxine Waters, chair of the house of representatives’ financial services committee, called for an immediate pause to Facebook’s development efforts.

READ MORE: Facebook's 'significant' Libra under scrutiny from new UK task force

UBS said the project may face even bigger hurdles in Asian markets, where Libra will likely be targeting.

“China, India, and Indonesia account for 30% of the 1.7 billion unbanked population globally where crypto regulations are very tough, so it remains to be seen how Libra can succeed in these markets,” UBS wrote.

UBS said Libra is unlikely to have much impact on Facebook’s stock or the wider industry in the short-term but “could be disruptive in the long term.”

Gantori and his team also analysed Libra’s white paper, which outlines the technical and logistical plans for the new cryptocurrency.

The team concluded, “Libra sits somewhere in between the traditional notions of a cryptocurrency and the accepted views of fiat currencies.” They added Libra is “closer to Ethereum than to Bitcoin.”

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