Monday was supposed to be an exciting day for Libra. Its governance organization, the Libra Association, held an inaugural meeting to select members for its leadership team — a critical milestone for the Facebook (FB)-developed cryptocurrency project.
But over the past week, Libra has been dogged by new challenges from politicians and a loss of support from some companies that had originally signed on as “founding members” of the project. It’s the latest issue during the months of pushback the project has weathered in its effort to create a new global payment system. On Monday morning, Booking Holdings (BKNG) confirmed it is also leaving the Libra Association, making it the seventh company to exit so far and leaving 21 of the original 28 members.
Leaders of the Libra Association, however, have stressed that the exits aren’t a death knell for the project.
“I would caution against reading the fate of Libra into this update,” David Marcus, who heads the Libra effort at Facebook, said Friday on Twitter after Visa (V), Mastercard (MA) and several others announced they would exit the association.
“Of course, it’s not great news in the short term, but in a way it’s liberating. … Change of this magnitude is hard. You know you’re on to something when so much pressure builds up,” he said.
The Libra Association is pushing ahead and on Monday released some preliminary details about how the organization will be run.
At the Monday meeting, the group elected its board of directors and appointed its executive team. The board, which will oversee day-to-day management of the organization, is comprised of Marcus and executives from Kiva, Andreessen Horowitz, Xapo and PayU.
Dante Disparte, who has represented the association for months as its head of policy and communications, will be a member of the executive team, alongside Chief Operating Officer Bertrand Perez and Head of Business Development Kurt Hemecker, both of whom previously worked for Marcus at his earlier digital payments startup.
“The Association is eager to pursue its mission of building a better payment network,” the group said in a statement Monday. “As an association, members will continue critical work with applicable regulators around the world, begin the important process of standing up a governance and policy structure and create a transparent membership criteria and admissions process.”
The group added that more than 1,500 other entities have expressed interest in joining, 180 of which meet its preliminary membership criteria, which includes such requirements as revenue thresholds for different types of entities.
Despite this progress, the loss of the seven members is a serious blow to Libra, which has counted on the participation of other companies to help quell lawmaker concerns about Facebook managing its own cryptocurrency. But it is likely that regulatory pressure pushed members away.
Several days before Stripe, Mastercard and Visa pulled out of the organization, Democratic senators Brian Schatz of Hawaii and Sherrod Brown of Ohio sent those companies letters sharing “deep concerns” about Libra. The letters hinted that the regulatory scrutiny Libra has faced could spill over onto its partner companies.
“In response to questions from Congress about the potential risks posed by Libra, Facebook deflects the responsibility of addressing these risks onto potential Libra Association members,” the letters state. “You should be concerned that any weaknesses in Facebook’s risk management systems will become weaknesses in your systems that you may not be able to effectively mitigate.”
Such a suggestion could be especially concerning for companies in the payments and finance industry, which is already highly regulated.
“There is a history of banks and payments companies being responsible for the wrongdoing of their cohort,” said Mehrsa Baradaran, a banking law professor at the University of California, Irvine. “If the person they’re working with isn’t a trustworthy partner, that may not be worth it for them.”
Regulators are concerned that Libra could pose a threat to traditional financial systems and the power of government-backed currencies. US lawmakers also say Facebook and the Libra Association have not provided enough details about how they’ll prevent cyber criminals and terrorists from using the digital currency.
Libra’s former partners appear to have been concerned about that lack of clarity, too.
In a statement to CNN Business, payments company Mercado Pago, which pulled out of the Libra Association last week, said it “has decided to suspend its participation as a founding member of Libra. In the future, when there is greater clarity regarding the project, we will be able to analyze the role Libra will play within the Mercado Pago ecosystem,”
Pressure on Libra might ramp up further next week when Facebook CEO Mark Zuckerberg is scheduled to testify before the House Financial Services Committee about the cryptocurrency.
“I think it got to a point where companies realized that if they were going to get out, they should do it now,” said R.A. Farrokhnia, executive director of advanced projects and applied research in fintech at Columbia Business School. “These companies, some of which have been around for a long time, need to be under not just the letter of the law but the spirit of the law.”
Now only one finance company remains in the association — a small Dutch fintech firm called PayU that facilitates digital payments for companies selling online. PayU said in a statement it is “delighted” to be a member, as Libra’s mission aligns with “PayU’s vision of creating a world without financial borders.”
But losing most of its payments company partners may make it harder for Libra to gain the regulatory approval it has said it will wait for in order to launch.
“I think Facebook understands tech and algorithms and data and AI and platforms really well, I do not think it understands money and banking well at all. I think the only hope for the project was to bring in a partner who understands how that works,” Baradaran said.