Celo promises to be a stablecoin to rival Libra. While unlikely to be regarded with the same distrust as Facebook’s much-maligned digital currency, Celo will still have its share of challenges relating to regulation and scale.

The announcement that Facebook was leading the development of a digital currency in June 2019 was met with fierce pushback from politicians and regulators concerned about a company of the social media giant’s size and influence taking such a stake in the mainstream global financial system.

The backlash saw the exodus of several of Libra’s partners, including PayPal, Stripe, Mastercard, Visa and eBay.

Mark Zuckerberg appeared in front of Congress in October to address concerns surrounding Libra, where he stated that something like Libra is necessary in the interest of creating a digital architecture to support innovation in the financial industry, even if Facebook “is not the ideal messenger right now”.

This demonstrates the minefield that Libra is traversing in coming to fruition, owing to Facebook’s prior record on the use of its users’ data and the perceived role of its platform in influencing democratic elections.

Significant changes have subsequently been made to the Libra project, with the association updating its white paper to appease regulators as it formerly commenced the process of obtaining a payment system licence in Switzerland.

This is where a project like the Celo Alliance could prove competition to Libra.

While offering innovative and frictionless global payments system bringing much-needed disruption to the world’s financial system, it may not be subjected to the same short leash from regulators and governments that any project involving Facebook will.  

However, all stablecoins will ultimately encounter some similar challenges of regulation, security and consumer adoption, and it remains to be seen to what extent Celo is more equipped to handle these than Libra.

What is Celo and what is it trying to do?

Celo has indeed been deemed a competitor to Libra and indeed had a healthy head-start, having been in development for almost three years. The Celo Alliance is non-profit organisation whose mission is to facilitate financial inclusion by developing a blockchain-based financial ecosystem.

Containing many of the elements of the Libra project, while also incorporating elements of Ethereum, with which Celo states it has “shared ancestry”. Like Ethereum, Celo’s blockchain will be open source and allow users to build general-purpose decentralised applications on it.

Celo has announced this month that its mainnet is now live, which will allow users to transfer Celo Gold tokens between one another, a significant step towards allowing the exchange of its stablecoin pegged to the dollar.

The project now has over 75 members, including a number of organisations that have also been part of Libra, such as Coinbase and US venture capital firm, Andreessen Horowitz.

Head of the Celo ‘Alliance for Prosperity’, Chuck Kimble, has previously stated that it is natural that companies should wish to join both projects given the similar aims and ethos of the two, specifically banking the unbanked.

Celo’s aim has been to build a flexible network of applications built on a blockchain to facilitate payments and remittances to people’s phone numbers.  

While there are 1.7 billion unbanked people in the world, it can be reasonably estimated that there are 4 billion people without a smartphone. This suggests that any initiative with a financial inclusionary outlook will not necessarily be a panacea for the underbanked when it is likely huge swathes of them do not have a smartphone or internet access either.

However, it may be argued that the smartphone-less population will shrink a lot quicker than that of the unbanked in the years to come, given how much smartphone use has already grown in emerging economies in recent years. According to Pew Research, for example, between 2015 and 2017, this figure increased from 52% to 80% in Lebanon, 35% to 53% in Vietnam and 21% to 35% in Ghana.

Can it succeed where Libra will struggle?

Celo's slogan is ‘Money can be beautiful’. The project is aiming to empower mobile and online working, quicker and cheaper remittances and reducing the costs and complexities of humanitarian work, through facilitating payments and simplifying microlending.

This aim is of course nothing new. It forms part of a broader trend of blockchain technology being used to expedite cross-border payments, which remains one of the areas of financial services still burdened by high friction and high costs. Celo will however aim to empower its various partners with humanitarian or sustainable goals, providing an infrastructure in which these can be realised.

While the Libra project has also attempted to stress its aims of financial inclusion and the positive global impact that this would bring, this will almost certainly have less credibility. Despite Facebook’s best efforts, the assumption from commentators will be that Libra is ultimately a cynical attempt to monetise its users and exploit it size, scale and wealth of data to further influence how they transact and live their lives.

However, the matter of Facebook’s size and global reach is an important one in assessing Celo’s chances of proving a worthy challenger to Libra. The very reason why Libra was such a worrying prospect for the financial world was the two billion Facebook users that it would be available to.

Despite Celo’s honourable intentions and the less stern reception it may receive from governments and regulators, it will not amount to anything unless consumers and businesses actually use it.

Celo has claimed that its partners have a combined reach of some 400 million people, which is no mean figure, but it is still unlikely they can boast the same levels of user engagement and customer adhesiveness that Facebook, WhatsApp and Instagram do.

On the other hand, this advantage could be overstated if Libra’s centralisation under Facebook’s auspices proves to be a burden.

“Given Celo’s approach to a decentralised governance model, this could ultimately help allowing freedom of evolution for Celo to further develop and ultimately scale on a similar trajectory to Libra,” says Reuben Karuna-Nidhi, UK managing principal of technology consultancy, Capco.

Are Libra and Celo in competition though?

The bigger picture, however, may be that Celo will not be competing with Libra, but rather contending with innovations in digital payments from the banking world.

Chuck Kimble stated at the unveiling of the Celo Alliance that its most serious threat is banking infrastructure catching up to the capabilities of stablecoin initiative “faster than we expect”.

Both Celo and Libra will have to contend with regulatory concerns, albeit to varying degrees, which may slow them down long enough for innovations from central and commercial banks to do some catching up.

A central bank digital currency or a stablecoin provided by a specific institution (such as JPMorgan’s JPM Coin) could probably satisfy regulators far more as their ability to prevent illicit activities supported by payments and security concerns overs customers’ data will be in less doubt.

Karuna-Nidhi sums up: “Currently the immediate outlook is very positive for the likes of Celo and Libra,  but they are likely to face tougher challenges in the future as new competitors emerge in the wider cryptocurrency arena.”

Should central banks be looking for technology partners to build the rails on which their CBDCs can run, who are they more likely to approach? Despite their misapprehensions around Libra, the centralised model may still be favourable to the decentralised approach that Celo will be offering.