Quant Lipton pans Facebook’s Libra

Former Bank of America exec sees more potential in rival projects, such as utility settlement coin


Like an “elephant in a china shop”. That’s how Alexander Lipton, former co-head of the global quantitative group at Bank of America Merrill Lynch, describes Facebook’s effort to launch a digital currency, called Libra.

Speaking at Risk.nets Quant Summit on July 18, Lipton said it was “far-fetched and slightly demeaning to suggest a company scrip as a future of money”.

Facebook claims Libra – which will be backed by a basket of fiat currencies and run on a permissioned blockchain network – will be faster, cheaper and less volatile than existing cryptocurrencies, such as bitcoin.  

But Lipton said Facebook was being naive about the difficulty of creating a truly stable digital currency. “In order to create this elusive token [that is] legally and intricately linked to the fiat currency, you have to have a pool which is stored by central banks and essentially you have to prefund all your transactions,” he said. “Building that kind of successful stable token is very hard.”

He also disputed Facebook’s assertion that Libra will expand access to financial services, especially in developing countries. “Libra will not help to bank the unbanked,” he said. “In reality, if Libra becomes popular in developing countries, it will result in runaway inflation, because its issuance is not immunised.”

Despite his reservations about Libra, Lipton is a proponent of distributed ledger technology (DLT) and digital currencies. He is the chief technical official at Sila, a digital payments company he co-founded in 2018.

Current banking and payment systems are “obsolete and not in line with the requirements of the modern world”, Lipton said. He sees far-ranging uses for distributed ledgers, from menial back-office applications such as regulatory compliance and commercial insurance claims processing to more ambitious projects, such as trade execution, clearing and settlement, and cross border payments.

“These are the particular pain points of the existing bank financial system. And that’s where we should probably aim our efforts,” Lipton said.

He also sees a need for a regulatory compliant, fiat-backed tokenised medium of exchange running on blockchain technology. One possibility is central bank digital currency – but Lipton said support for this is tepid, with the Bank of England exploring the idea, and the Fed flat out against it.

He was more optimistic about utility settlement coin (USC), a digital currency designed by a group of banks and a DLT firm called Clearmatics. USC will be fully backed by cash held in reserve at central banks. The project is supported by more than a dozen large banks and the first transaction is expected to take place in 2019.

“Initially, USC can be an internal token for a consortium of participating banks,” Lipton said. “Eventually, these coins can be circulated among a larger group of participants.”

Lipton said his preference is for tokens stabilised by real assets. He is actively developing so-called digital trade coins (DTCs) with colleagues at MIT, where he is a connection science fellow, and through his company, Sila. The distinction between cryptocurrencies such as bitcoin and DTCs is that the latter are backed by real collateral, typically commodities, such as oil, gold or crops. 

“Why it is so good, is that in principle, it can work as a counterweight for inflation and things like that,” he said. DTCs combine “both the best features of cash and digital currency” and “will be immune to the policies of central banks,” Lipton said.

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