The Breakdown - Narrative Watch: Binance, Venus and the coming battle of CBDCs & non-sovereign fiat

Episode Date: August 19, 2019

Binance blew open the doors on the global battle for stablecoin supremacy today when they announced Venus - a project that seems to combine some aspects of permissioned corporate chains with central bank digital currencies (aka convenient surveillance money). What does it mean for consumers? What does it mean for governments? What does it mean for Libra? Would you chose CZ or Zuck to make your digital currency? Dig in with this #NarrativeWatch.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another narrative watch. All right, so this one is hot off the presses. We're filming on Monday morning. This should go out later today. Woke up to some big news from Binance about their new project, Venus, which you may realize has another astrological name in the tradition of Libra. And that's exactly what it's about. So the narrative watch today is about CBDCs, aka Central Bank Digital Currencies, and the non-sovereign Fiat Wars.

So let's dive right into this. So a couple months ago, this was July 1st, the Bank of International Settlements Chief, central banks may issue digital currencies sooner than we think. So let's talk about what central bank digital currencies are, right? On the one hand, we know what open public blockchains are and coins on public blockchains like Bitcoin and Ethereum, right? So these are permission lists, anyone can use them, anyone can build on them. That's kind of in their nature. Then you have a permission kind of corporate chains, right?

So things like JP Morgan Coin or even Libra that are kind of run by either a company or a consortium of companies. Then you have what's called central bank digital currencies. And these are basically digital fiat currencies. So these are currencies that are backed by a central bank, potentially pegged in kind of a stable coin version to the fiat, the offline fiat currency. but effectively are just really powerful, you know, hugely convenient but also hugely traceable, trackable, controllable, relative to something like Bitcoin, which is obviously much less so. So there's a lot of reason to think that central banks are going to be extremely interested in this. One, they've expressed interest.

Two, it's kind of it feels like a technological inevitability, right? where if all of a sudden people are flocking to forms of money that are natively digital because they're faster, more convenient and easier, if you are a central bank who wants to keep its kind of monopoly or its control over money printing, you have to compete on a technology level as well, potentially. So for the last couple months, we've been seeing these rumblings of central banks getting into this game sooner rather than later. And pretty undeniably, it comes from Libra, right?

So this is a story also from July, an ex-Peeples Bank of China, which is their version of the Federal Reserve, although it is not an independent body like the Fed is, says that China should prepare digital yuan to counter Facebook's Libra. So he says, Libra has introduced a concept that will impact the traditional cross-border payment, business and payment system. And he argues that China should basically take this as a competitive threat and compete with it, right? So again, so what you're seeing here is this new form of money start to emerge and people talking about it. Central banks wondering whether there's a version of it that's for them. And then the example of Libra really provoking them to get in that game. And why is Libra doing so much to get central banks interested, whereas Bitcoin wasn't, you know, Bitcoin's been around forever and other stable coins, Tether has been around forever, no one was competing? It's the fact is that having two billion users, two billion plus users, you know, Bitcoin's been around forever.

users means that Facebook functions as a totally different political force, is a totally different size and scale of competitive threat and network effect that these governments are taking seriously, right? Because what they're imagining is kind of the loss of their sovereign powers to some sort of globalist non-sovereign network that functions above and beyond where national borders can do. So anyway, so that's why Libra is such a big deal. Then at the beginning of August, you had CN Ledger, who traces kind of crypto news in China, post about a Beijing news article, People's Bank of China, the country's central bank, calls for speeding up of the research and development of China's official digital currency in the second half of 2019.

So again, earlier this month, we started to see some more rumblings. And then, just a couple weeks ago, a couple weekends ago, we heard from a representative of the People's Bank of China, he the deputy director of the payments unit, Mu Changchun, and I'm sure butchering the name, said that basically the digital yuan offering was close to being out, close to being available. So this is an effort that's been under R&D basically for five years. Since 2014, China's been looking into creating a digital currency.

As we mentioned in July, a former PBOC member or governor said that they should accelerate it. And now we've got China actually talking about how they're close to being ready to roll it out. So Dovi Wan, who is obviously one of kind of Western crypto-Twitters translators of what's going on in China, shared a little bit more about it and what the agenda is. And she kind of talks about how it's different than other types of cryptocurrencies. A big point that she makes or that they make, really, than she's translating, is that what they want to issue is core M-0 money supply, right? So Libra is not M-0.

They want to issue M-Zero. So, again, the context for all of this emergent questions around central bank digital currencies and the Chinese digital currency is in the context of Libra and the competitive threat that it represents. So I wrote after this news that we're seeing a trifurcation of crypto

into those kind of three different domains that I mentioned earlier, right? The first being permissionless public chains, the second being permission corporate chains, the third being convenience surveillance money. So this is a really interesting division of this space, and I think it's going to be important to see how they evolve. Well, today I woke up, and a lot of us woke up to Binance, kind of obliterating the lines between particularly number two and, number three, permission corporate chains, and three, convenient surveillance money. So,

Binance announced Venus. So let's go look at the block coverage, defining Venus as a regional version of Libra, calling it an independent regional version of Libra. The block also pointed out that astrologically speaking, Libra's ruling planet is Venus. So clearly there's some memetic games being played here. So the idea, though, is Binance said it's going to launch Venus cryptocurrency because it has presence in several countries, has its native blockchain finance chain in place, and it wants to break quote the financial hegemony and reshape the world's financial system.

We believe, and this is a quote from them, that in the long and near and long term, stable coins will progressively replace traditional fiat currencies in countries around the world and bring a new and balanced standard to the digital economy. We hope to achieve a vision that is to reshape the world's financial system, allow countries

to have more tangible financial services and infrastructures, protect their financial security, and increase the economic efficiency of countries. So this is there's actually a couple announcements. There is a English announcement, which you can read. And then there is an announcement in Chinese, which back to Dovey again, points out that there's some pretty significant differences in the language used in the Chinese version. So she says, one, the preface in the Chinese version is pretty strong with wording such as financial hegemony, stronger get stronger, weaker get weaker. The second part,

she adds that their finance gives more facts about why Binance. And then, And then three, the rest of the Chinese announcement completely develops its own narrative. Again, reemphasizing the financial hegemony and its Binance's dream to break the financial hegemony and reshape the world system. So she thinks that this is, quote, a very bold message Binance wants to send to the Chinese central regulatory body. I think that the most interesting thing that I saw, though, was actually the co-founder of Binance saying Venus is the one-belt, one-road version of Libra.

So one belt, one road is China's development policy all over the world where they're, you know, spending huge amounts of money to build infrastructure in other countries. This is a foreign policy and an economic initiative in a lot of ways. And I think that this really gets a key point, right? So I actually said something to the effect of when you read about Venus today, really, really think about this as it gets compared to Libra. If your government and the options are Zuck undermining your money printing authority or CZ collaborating on a digital version of your fiat, what are you going to pick? So basically what it seems to me like Venus is setting out to be is almost a CBDC platform, right? It's a digital fiat stable coin platform where I would strongly bet that they will work with those governments that are most interested in working with them. They will opportunistically look around the world to see who has an interest in creating their own digital version of their fiat, right?

And if you are a government and you're thinking about these two examples of just, you know, imagining what happens if your citizens start to prefer Libra on mass versus creating something that has all of the benefits or the supposed benefits from a convenience perspective of Libra, but that is still tied to your currency specifically or to some regional basket of currencies, it seems like a no-brainer, right? You're going to go with the one that is better preserving of your authority that doesn't institute a totally different. different order. And I think, so this echoes a point that Nelson Rosario, who writes about kind of the legal implications of crypto on the block, among other areas, wrote, he said that, you know, this is from the end of July. I've seen a lot of takes that Libra will never take off because of government and regulatory pressure. This seems wrong to me. And basically, his point is that when it comes to something that is sort of controllable like Libra versus something that is uncontrollable like Bitcoin, governments, in particular the U.S. government is likely to do a deal

with the devil to at least have something like Libra that's in its regulatory framework, right? Even now you're seeing just also this morning, it was announced that Congress is sending six members to Switzerland to talk about Libra. So they're clearly taking it seriously. Well, if I'm a government, maybe every other government in the world, except perhaps the U.S., And the option is this Binance thing pegged to my actual fiat currency or Libra, which is kind of by definition de-emphasizing any one cryptocurrency by having the stablecoin basis be a basket of currencies. I'm going to choose Binance, right? So someone sum this up. Selina Jin from Blockstream wrote, make an announcement versus initiated revolution.

And I think that that's kind of the implications. Like, finance is throwing down the gauntlet with this. This creates such a massive, powerful force that I believe will accelerate the conversations around central bank, digital currencies, and digital fiats so aggressively. Binance is not a company that moves slowly, and they have shown that they are extremely adept at regulatory arbitrage. And it seems to me highly likely that, they will go in and scoop up all of the fear that comes from Facebook, this powerful force,

as it gets stuck in the regulatory regime, they'll go find all of those countries that kind of want what Libra offers, but in a way that's better for them. And they'll be a huge winner of it. So this is obviously highly evolving. This news just came out this morning. I'm sure we're going to see a ton more analysis, but I honestly can't think of a more important narrative to watch right now than this question of what happens when Binance gets its hooks in every government that wants to print a digital currency around the world. Anyways, guys, that is Narrative Watch for this week. I think it's a real big one.

So hit me up on Twitter at NLW. Thanks to Masari for hosting this, and we will see you next week. Peace.