Libra Project: Facebook Stablecoin Aims to Conquer Online Payments Market, Reports Suggest
More on Facebook’s potential expansion into crypto.
Facebook’s potential expansion into crypto has been widely discussed in the past few months. Although the social media giant has not confirmed anything beyond having a blockchain department, new details about its digital token project continue to surface.
Most recently, the Wall Street Journal (WSJ) reported that Facebook is talking to major payment networks Visa and MasterCard to raise a $1 billion for its crypto project, which reportedly entails a stablecoin along with a crypto-powered online payments system.
Brief history of Facebook’s secretive crypto project
Facebook has been rumored to be involved with cryptocurrencies for at least a year now. In May 2018, the online publication Cheddar reported that the social media titan is “very serious” about launching its own digital token for its 2 billion users.
In response, the corporation did not comment on having a potential cryptocurrency in the works, but shared a short statement regarding its newly established blockchain team:
"Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new small team is exploring many different applications. We don’t have anything further to share."
The existence of Facebook’s blockchain research team remains to be the only official confirmation that the social media corporation is involved with crypto. The arm is lead by David Marcus, ex-Paypal president. Notably, soon after joining Facebook’s blockchain department, he had to leave the Coinbase board of directors, of which he was a member, to avoid conflict of interest. Marcus has also admitted to having “a longtime” interest in cryptocurrencies.
By December 2018, the social media corporation’s blockchain team, once categorized by Marcus as “small,” had nearly 40 employees, as per media reports. In late March, five new blockchain-related positions were announced, suggesting that the technology department might continue expanding in the near future.
As 2018 was drawing to a close, rumors about the Facebook-run cryptocurrency reignited with new details. Specifically, Bloomberg reported that the social media company is making a cryptocurrency for users of the messaging service WhatsApp, which Facebook acquired for $19 billion back in 2014.
The token will allegedly allow users to make money transfers within the messaging app and will focus on the remittances market in India, where WhatsApp is reported to have more than 200 million users. According to data from the World Bank, the country received nearly $69 billion in foreign remittances in 2017, which is 2.8% of India’s GDP.
Further, Bloomberg’s sources said that Facebook is developing a stablecoin, specifying that the social media outlet was still figuring out which asset their token will be tied to.
In response to requests for comment at the time, Facebook once again forwarded the statement about “exploring ways to leverage the power of blockchain technology."
In February 2019, The New York Times wrote that Facebook is “hoping to succeed where Bitcoin failed,” revealing more details about the social media titan’s alleged crypto project.
According to the report, Facebook plans to rebuild its messaging infrastructure and merge its three wholly owned apps — WhatsApp, Messenger and Instagram — under one platform. As the NYT wrote, this would provide a future crypto token with exposure across the combined 2.7 billion who use the three services each month.
Additionally, the NYT quoted five people who have allegedly been briefed on the Facebook team’s work as saying that the corporation’s token will likely be a coin that would be pegged to the value of traditional currencies instead of just the United States dollar.
“Facebook could guarantee the value of the coin by backing every coin with a set number of dollars, euros and other national currencies held in Facebook bank accounts,” the report specified.
New details: $1 billion stablecoin for in-house crypto payments
The new WSJ story follows previous reports centered on the social media giant’s secretive project, and mentions even more concrete plans. Notably, the story mentions that the crypto project is codenamed “Libra Project,” while Facebook has recently acquired the rights to the “Libra” trademark, as per media reports.
Specifically, the publication argues that Facebook is planning to launch a cryptocurrency-based in-house payments system, and is in talks with financial firms, applications and e-commerce merchants. The social media platform has reportedly approached them to offer its token as a way to conduct online payments, as well as to seek financial investment.
Thus, the WSJ writes, Facebook “aims to burrow more deeply into the lives of its users” with the new system, following the moves of Apple and Amazon, which have recently unveiled major financial products of their own.
Notably, the in-house payments might be performed via a user’s Facebook profile. The social media platform is purportedly developing a type of checkout option that could be conveniently used on other websites — similarly to how a Facebook profile can be used to log into many platforms without having to sign in.
Furthermore, the social media behemoth might start paying its users with Facebook Coin — the unconfirmed name of the token — for viewing ads, shopping on Facebook or interacting with other content.
“This would reward the kind of genuine interaction that Facebook, beset by bots and hate speech, has been trying to encourage,” the WSJ suggests. “It could also blunt criticism that the company makes billions of dollars on the backs of its users, sometimes in troubling or invasive ways.”
The stablecoin model has been chosen to ensure the absence of volatility, the report continues, because “bitcoin and other cryptocurrencies that aren’t backed by hard assets has hampered their usefulness in payments.” A digital token that is backed by fiat, in turn, would prove to be a more reliable medium.
However, it is still not clear how much control Facebook would have over its digital coin — which seems to replicate the situation with JPM Coin. After the U.S. banking juggernaut rolled out its crypto project for in-house payments back in February, some claimed it was not a cryptocurrency at all, but a marketing play for JPMorgan Chase.
“I do believe that it would be considered a cryptocurrency stable coin, similar to USDC, an Ethereum-based stablecoin offered jointly by Coinbase and Circle that is fully backed 1:1 by US Dollars and audited by Grant Thornton LLP, a widely respected top accounting firm,” David Martin, Chief Investment Officer of the financial firm Blockforce Capital, told Cointelegraph.
“Coinbase and Circle formed the CENTRE Consortium so that the coin was not backed by just one centralized entity, but most people view USDC as a centralized ecosystem, and I'd imagine a Facebook coin would be set up in a similar manner.”
Eyal Shani, a blockchain researcher at consulting group Aykesubir, says that Facebook Coin “definitely” seems to be a cryptocurrency:
“If done correctly, even a centralized stablecoin together with the large user base can potentially lead to new innovative ideas for the payments world. Furthermore, we see this as a positive development that will eventually be taken over by officially minted crypto coins by the government, which will make the stablecoins obsolete.”
Facebook needs large amounts of government currency to reinforce its stablecoin. Interestingly, the social media has approached major payment networks Visa and MasterCard to raise a total of $1 billion, along with payment processor First Data Corp., according to the WSJ sources. But Facebook's efforts to create a stablecoin could disrupt payments from players like Visa, Mastercard and Western Union in the long term, Martin said to Cointelegraph:
“To me, this is similar to JP Morgan creating their own coin, Goldman [Sachs] investing in the cryptocurrency custodian Bitgo, and the owner of NYSE, ICE, making a huge push in the crypto space with Bakkt. Traditional payment and financial companies need to remain relevant, and in order to do so, they need to make investments in the cryptocurrency and blockchain ecosystem so they don't get passed by like Blockbuster was by Netflix.”
Shani, on the other hand, believes that Facebook Coin will not necessarily undermine the veteran payment networks. “We know that Visa has already raised some concerns regarding their ability to support micro-transactions and transactions generated by large networks of Internet-of-Things,” he said. “They are looking for innovative ways to offload the burden off their systems and this could be one of those ways.”
Either way, given that Facebook boasts more than 1.5 billion daily users, if Project Libra succeeds, it threatens the card networks’ dominance over global payments — especially within developing countries, where social-media platforms form the basis of internet commerce.
“I see Facebook Coin as an attempt by Facebook to go up against WeChat by moving the US Dollar into a private online payment system,” Hartej Sawhney, co-founder of smart contracts auditing firm Hosho, told Cointelegraph.
“Facebook has had their eyes feasted on the remittances and payments market of India for years, which is interesting because India's government has been announcing a country wide ban on cryptocurrencies.”
Martin also believes that Facebook might attempt to seize the mobile payments industry with its digital token. However, he adds, the corporation’s domestic market might prove to be an even better gateway:
“The US has significantly lagged mobile pay adoption metrics compared to Asia, with 74% of the Chinese population utilizing their mobile phones for payments versus only 44% in the US. Alipay and WeChat account for 93 percent of China's mobile payment segment, whereas the United States, in particular, is much more fractured. This represents a significant opportunity for Facebook to establish itself as a nationwide and global leader of payments with their user base. Blockchain, and its inherent use case for peer-to-peer cash transfer, scalability, and relative ease of integration make it an excellent base for Facebook to finally crack into the mobile payment world, especially as over the next few years the US should close the gap of mobile payment adoption as a percent of the population.”
Libra could also prove to be one of the largest cases of mainstream adoption for crypto, and therefore push the entire industry further, Martin suggested in an email conversation with Cointelegraph:
“Cryptos need a tangible use case and customers to adopt and utilize the platform. The fact that Facebook has 2.4 billion users representing about 1/3 of the world's population gives it a substantial leg up in garnering adoption. As a comparison, it's estimated by Statista at the end of 2018 there were 32 million bitcoin wallets, but many people have more than one wallet. Even if each wallet was held by a different individual, the number of individuals owning bitcoin would represent about 1.3% of Facebook's user base. This represents a substantial opportunity for a digital asset to garner mass adoption.”
Indeed, as recently argued by Blockchain Capital partner Spencer Bogart in an interview with Bloomberg, the potential release of Facebook Coin could result in the cryptocurrency user base doubling or tripling.
According to Bogard, the social media’s digital token is likely to introduce the masses to the idea of cryptocurrencies:
“It’s like being on the internet; so people can spin out and they can start owning bitcoin, they can start owning ether. Some percentage of the user base is likely to do so, and again I think that’s gonna be a dramatic catalyst.”
Moreover, Bogart claimed, Facebook’s plan “lit a fire in the pants of every major fintech and financial institution in the U.S.,” suggesting that more corporations might follow suit in the future.
No processing fees: Facebook Coin’s plan to attract more merchants
Finally, as per one of the WSJ sources, Facebook plans to abolish card processing fees that merchants pay for transactions on its system. Normally, such fees constitute around 2% to 3% of the transaction and are collected by banks, payments processors and networks such as Visa. That could pressure online merchants to switch sides, especially since Visa and MasterCard have recently announced they were increasing fees for processing transactions.
However, the absence of a clear source of revenue seems to be the most baffling part of the social media giant’s alleged scheme. “If Facebook is indeed aiming to eliminate credit card fees with its new crypto payment network, it raises the question of how it hopes to make money from the thing, especially if it comes alongside the company granting its users privacy and giving up surveillance revenue,” Nathaniel Popper, technology reporter at The New York Times, who first reported on the social media giant’s plan to raise a $1 billion sum for its cryptocurrency project earlier in April, tweeted.
According to Shani, Facebook might be focusing on building a wider audience before monetizing its crypto scheme:
“The profit part is clear in this case. Facebook, unlike many other crypto projects, has all the know-how and ability to monetize its user base in the forms of aggregated data and advertising.”