Is Libra a Security?


Jul 2, 2019
American legislators have reportedly decided to introduce a bill that would put Facebook’s Libra cryptocurrency under the jurisdiction of the Securities and Exchange Commission (SEC). According to reports from CNBC, Sylvia Garcia and Lance Godeen, two Texas representatives, have proposed legislation that would place regulatory scrutiny on Libra and any Libra related projects. But is Libra a security? Let’s investigate.

What is Libra?

Libra is a permissioned blockchain and digital asset founded by Facebook. The cryptocurrency and ecosystem are still being built, and only experimental code has been released so far. The launch is planned for 2020.

Libra will be backed by financial assets such as US Treasury securities, as a way to avoid volatility. Facebook announced that each Libra service partner will invest an initial $10 million USD so that the coin has a full asset backing on the day of its launch. New Libra coins will be created based on demand, and Libra will not be decentralized.

Is Libra a security?

According to Rep. Garcia, Libra and other managed stablecoins “are clearly securities under existing law.” She argued that, “This legislation simply clarifies the statute to remove any ambiguity. Bringing clarity to the regulatory structure of these digital assets protects consumers and ensures proper government oversight going forward."

Rep. Gooden, the bill’s second sponsor also highlighted Congress’s responsibility to put in place and clarify a regulatory framework applicable to stablecoins. He elaborated, saying that the bill would be necessary to help consumers understand the financial assets that they were investing in, stating:

“In what are called ‘managed stablecoins’, we have trusted brands marketing digital assets to consumers as secure and stable [...] Everyday investors need to know they can trust the issuers behind their financial assets. This bill would bring them the security they deserve by applying the laws we use to regulate financial securities to this new breed of digital currencies.”

If you’re thinking of entering the crypto market with stable coins, head to Vertex.Market where you can find several stable coins, most notably Tether, and trade with crypto peers across the globe, the way that Satoshi intended.

However, Libra supporters argue that the stablecoin is not a security. During a hearing with the House Financial Services Committee earlier in 2019, the head of Facebook’s crypto wallet service Calibra, stated that he believes that Libra is not a security, but rather should be treated as a commodity.

For clarification, a security is a certificate or other financial instrument that has a monetary value and is capable of being traded. There are two main types of securities: equity securities, like stocks, and debt securities, like debentures.

Contrastingly, commodities are economic goods or services that have full or substantial fungibility. That means that the market treats the goods as equivalent, or nearly so, without regard to who produced them. Commodities are interchangeable with others of the same type.

Libra’s not alone

So is Libra a security? Regulators sure seem to think so. However, Libra and Facebook aren’t alone. Telegram got into hot water with the SEC in 2018, when the regulators declared that Telegram’s $1.7 billion Gram token sale was illegal, arguing that the tokens are securities. Telegram pushed back, claiming that Gram is actually not a security. The counterclaim has since been challenged by the SEC.