Security or Commodity? Former CFTC Advisor Says Facebook’s Libra Could Be Both

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The distinction between a security and a commodity is important in deciding how digital assets are regulated. In the U.S., securities are regulated by the Securities and Exchange Commission, while commodities are regulated by the Commodity Futures Trading Commission.

Both the regulators and the systems of regulation change depending on whether an asset is a type of security or a commodity, and there have already been several high-profile legal battles worldwide to determine where certain types of cryptocurrency and blockchain assets fall.

But speaking in the context of Facebook’s cryptocurrency project, Libra, a former fintech advisor to the U.S. Commodity Futures Trading Commission has said in reality the stablecoin could be both.

Jeff Bandman described defining what Libra actually is as “one of the most important questions,” but suggested the decision was not for Facebook to make.

“It’s not as if Facebook can just select the category itself identifies with … and regulators will just agree to it. They (the regulator) will look behind the scenes, not just the form (of Libra), but the substance and function, and they will decide what it is.”

With Facebook’s plans for a global rollout, Bandman said this could introduce further complexities, as the cryptocurrency could be viewed differently by different regulators.

“If Libra is a payment system, the payment system regulators are typically the central banks. And then you have to look at all the countries (where) Libra is potentially being used or deployed. They may all have slightly different definitions. Maybe in the U.S., Libra is considered as a security, but maybe not in Switzerland.”

In particular, Bandman said regulators concerned with maintaining financial stability would likely be most interested in defining and regulating different types of digital assets.

“For the last couple of years, different groups have looked at crypto assets and generally concluded they are not a threat to financial stability because they are small. But now all of a sudden you have a platform with 2.5 billion users. Anything that it does will necessarily be large.

“That doesn’t automatically mean it becomes a threat to financial stability. But because this is on such a scale that if this thing gets off the ground and launches, there could be financial stability implications on Day 1.”

The comments underline the challenges ahead for Facebook, with the social media giant eyeing a worldwide launch for its stablecoin in the near future.