A blockchain firm advised by Nobel laureate Myron Scholes just launched a rival to Facebook's libra

Key Points
  • Saga is launching a virtual currency which pegs its value to the basket of currencies that form the IMF's special drawing rights.
  • The U.K.-based company's advisory board includes the likes of Nobel laureate Myron Scholes and J.P. Morgan's Jacob Frenkel.
  • But the firm doesn't plan to launch its token in the U.S. yet, claiming it doesn’t currently have the regulatory clarity required to do so.
Myron Scholes
Patrick Fallon | Bloomberg | Getty Images

One blockchain company thinks it has an alternative to Facebook's digital currency proposal.

With an advisory board that includes top economists like Nobel Prize-winner Myron Scholes, U.K.-based firm Saga hopes to introduce a global currency that regulators find agreeable.

The company on Tuesday launched its saga (SGA) token, a virtual currency tied to a basket of currencies in order to maintain a stable value. That's not too dissimilar to Facebook's libra, which was met with a barrage of regulatory opposition moments after being announced. But one key thing that sets it apart from that project is what Saga bases the currency's value on.

Rather than creating a new asset basket like libra's, Saga is pegging its token's value to bank deposits in the same group of currencies that form the International Monetary Fund's special drawing rights (SDR) — these are international reserve assets held by central banks to supplement their official reserves. The basket is heavily weighted in dollars, as well as the euro, Chinese yuan, Japanese yen and British pound.

Facebook won't have access to libra data, head of Calibra says
Facebook won't have access to libra data, head of Calibra says

Another distinction with libra is the fact that Saga won't be profiting from it. It's only acting as an issuer of the token, rather than building its own digital wallet for users to store and exchange it like Facebook is doing with Calibra. The SGA tokens will initially be available to purchase on Saga's website and is being listed on the cryptocurrency exchange Liquid.

"Unlike other players, we don't want to be the issuer and the payments layer and the custodian," Saga founder Ido Sadeh Man told CNBC in an interview. "We're focusing on the monetary part of it, on the issuance of a sound currency for global use, and we will increasingly liaise with partnerships in the realms of custodianship and of payments."

Like libra, SGA features the characteristics of a so-called stablecoin, which seeks to avoid the volatility of cryptocurrencies like bitcoin. Saga says it can stabilize the value of SGA with smart contracts — self-executing contracts on the blockchain that are used to adjust the money supply in order to meet demand.

As for how it will be used, Sadeh Man said the objective is for SGA to serve as a "complementary currency for cross-border payments." He gave the example of British consumers wanting to use it to pay for things on Amazon if the pound fluctuates in reaction to Brexit-related news. "This is where we see saga fitting in as a global currency."

Other than Nobel laureate Scholes, Saga also counts Jacob Frenkel, the outgoing president of J.P. Morgan's international business, and Dan Galai, a pioneer of the VIX volatility index, as advisors. "Myself and the core technical team, being technology experts, realized quite early on that we can't do it alone," said Sadeh Man. "We still need to have the policy experts."

'Banking-grade compliance'

But a degree of skepticism is warranted for nascent blockchain projects like Saga's. In 2017, investors bought into new cryptocurrencies generated through so-called initial coin offerings, a fundraising practice that gave rise to multiple scams. That in turn has meant regulators are more cautious than ever when it comes to the crypto space, given its association with illicit activity.

Saga says its offering is different as it encompasses "banking-grade compliance," with anti-money laundering checks that ensure the people transacting in the token aren't anonymous. That's different to bitcoin, where users are identifiable only by an alphanumeric address. And a key source of worry for regulators regarding libra has been its potential use in illegal transactions.

It also claims its model provides a "democratic" alternative to libra, which is being overseen by a consortium of 21 companies. In Saga's case, "the holders are the sovereign of the currency," according to Sadeh Man, adding such holders will be able to vote on Saga's board of directors and steer its monetary policy. He said he agrees with Apple CEO Tim Cook that corporations like Facebook shouldn't be in control of a currency.

Though it is a non-profit organization, the venture is backed by investors including Lightspeed Venture Partners and Mangrove Capital Partners. But the company says these investors did not get equity in exchange for their investment — instead, they received Saga's "genesis," or SGM, tokens which can be converted into SGA once the latter is launched.

There's one glaring problem with Saga's tokens however — they aren't regulated, and therefore won't launch in the U.S. America "is an area we don't want to be in" for the time being, Sadeh Man said, adding "we only want to operate where it is clear we are respecting compliance." He does however hope the U.S. regulatory picture looks clearer in the future.