“It would both be over-rated and under-rated:’ We spoke to some of the top crypto experts about Facebook’s reported stablecoin — here’s what they said

Just when you thought the market for stablecoins couldn’t get any more crowded, news breaks that Facebook is working on its own stablecoin. The new digital currency, which was first reported on by Bloomberg News, would first target the Indian market and allow users to transfer funds on the firm’s message app, WhatsApp. Facebook would join companies like Coinbase, Bitfinex, Paxos, and a number of other firms in the market for stablecoins. At first glance, the news appears as a much-needed bullish stamp of approval for the floundering crypto market, which has shed hundreds of billion in market capitalization since the beginning of 2018. With more than 2.5 billion users, a Facebook stablecoin could more easily catch on among non-crypto fanatics than other projects.

Still, many market observers with whom The Block spoke to about the news were more skeptical of Facebook’s entrance into the market. Facebook has been gripped by a crisis of trust among its user base for not properly protecting customer data, starting first with the infamous Cambridge Analytica scandal. And its centralized nature, they say, directly contradicts the underpinning ethos of cryptocurrencies, in particularly bitcoin, which was started to remove middlemen and allow folks to transfer value peer-to-peer.

Here’s what some of the experts had to say:

Travis Kling, chief investment officer at Ikigai Asset Management:

It’s apparent that the Stablecoin concept is of systemic importance not only as the backbone of crypto asset trading but as something much bigger- a sort of Venmo for the entire world. There are many Stablecoin projects currently in existence, most of which are centralized in the governance and execution. While it would be nice if we didn’t have to trust a third party to implement a Stablecoin ecosystem, doing that in a decentralized manner at scale is difficult.

We know Facebook has been looking at DLT and crypto assets for quite some time. We know they have a big team working on it. Facebook is uniquely positioned to implement a Stablecoin ecosystem given their installed user base on Whatsapp and FB Messenger, very similar to the manner in which WeChat is currently used in China.

We know Facebook has billions of USD parked overseas. Those cash balances could potentially be used to facilitate the buildout of a Stablecoin ecosystem across jurisdictions- creating a sort of alternative banking system. This is especially interesting for the billions around the world that have access to a smartphone but do not have access to a functional banking system or a stable fiat currency.

These sort of promises, to bank the unbanked, are supposed to be fulfilled in a more decentralized manner- without a trusted third party like a bank, government or Facebook. The best part about this announcement from Facebook is that it lights a fire underneath the developer community working on decentralized projects.

This announcement puts the crypto industry on notice- Facebook is coming for your use cases. Mark Zuckerberg is going to co-opt DLT to the benefit of Facebook, under the guise of it being good for the world. If the decentralized community doesn’t put forth a compelling alternative soon, Facebook has a good chance of winning this use case. The question is- do you really want Zuck as the guy bringing financial services to 2 billion people that don’t have them currently? Do you really want to trust that guy with that responsibility?

Meltem Demirors, chief strategy officer at CoinShares:

From a strategic perspective, Facebook should build its own payment capabilities to keep payment-related revenue streams and, more importantly, financial data about users and their transactions, within the Facebook application ecosystem including WhatsApp and Instagram.

The world’s largest banks count their size in hundreds of billions in assets and a few millions users. If Facebook could activate just a small portion of its 2 billion strong user base with a platform-native currency, it would very quickly become the world’s largest bank by customer count. Having a captive audience of financial consumers would be a massive revenue stream for ad sales, marketing, and direct distribution.

However, I worry that Facebook won’t have adequate internal controls to manage the complexities and moral hazard of mingling social media with financial access, given the information that has come to light in recent months.

Nathaniel Whittemore, founder at NLW&CO:

If the Facebook Stablecoin plays out as is being reported, it will create something of a paradox for the industry. On the one hand, hundreds of millions if not billions of users will be exposed to a non-state money, with undeniable positive impact around things like global remittances, one of the most extractive and exploitative parts of the global financial system. On the other hand, it’s fucking Facebook. We’re already in massively uncharted waters in terms of the power a private company can have by virtue of their control of the social and information graphs. Adding the financial graph takes that to a new extreme. So, net positive or negative? Hard to predict, but one thing is for sure: it will happen. There is simply too much for them to gain not to try.

Arjun Balaji, managing partner at Shomei Capital:

Operating under the assumption that FacebookCoin is some sort of stablecoin-like structure, it would both be over-rated and under-rated. A likely centralized issuance and lack of fixed-supply make it extremely over-rated as a threat to Bitcoin (as non-sovereign money), especially in a world where consumers all over the world cringe at the thought of Facebook’s privacy. On the other hand, Facebook’s massive distribution (including in markets where remittance is difficult like India) make it appealing to hundreds of millions of consumers in addition to its’ increased “fairness.” I’m skeptical Facebook’s efforts will succeed in detracting attention from truly open networks (where the use cases make sense) but one thing Silicon Valley does better than everyone is design platform companies—an AliPay-like ecosystem will likely emerge.

Murad Mahmudov, chief investment officer at Adaptive Capital:

Facebook is calling it a cryptocurrency to merely capitalize on the recent blockchain hype. Their stablecoin might as well be a centralized system, and the product would be no different, and will almost certainly be perceived as centralized by intelligent market participants. At best it will be a digital dollar-equivalent. However, most of the dollars in the world already exist exclusively in digital form.

This product may be competitive with other centralized stablecoins, but it will not be competitive with truly decentralized cryptocurrencies like Bitcoin which provide assurances of censorship-resistance, uninflatability and utmost unseizability. The proliferation of megacorporate stablecoins and fiatcoins, and even, dare I say, central bank digital currencies, in the long-run, will be mere onramps for truly decentralized, scarce, sound, hard, immutable, trust-minimized money of the future.

Soona Amhaz, co-founder and chief executive officer at Token Daily:

The stablecoin is just one small part of what Facebook’s building out. My perspective on this specific part of the project is that its reminiscent of Microsoft’s battle to dominate the internet market in its infancy. Microsoft’s tone deaf attempt at containing the Internet in a single, Microsoft-controlled space missed the point: the internet is uncontainable. Microsoft did become the dominant entry point for the internet in the late 90s/early 2000s and helped people familiarize themselves with the internet via Internet Explorer. But, ultimately, the market chose alternatives better tailored to their needs. Of course, cryptocurrencies are different than the internet, but people’s behaviors stay relatively predictable.

Brendan Bernstein, managing partner at Tetras Capital:

FB is in the business of attention & engagement. Everything needs to be looked at under that lens. 3x more people in India with bank accounts than fb accounts. Digital payments are rising. This is a play to capture that market. One of the last pieces of proprietary information they don’t yet have — I hope so at least — are detailed spending habits. This data will increase the value of their ad product and CPMs.

Spencer Noon, crypto investor:

Facebook launching a stablecoin is probably the most noteworthy industry development of 2018. They will start with remittances because of its established product-market fit with WhatsApp users but make no mistake, this is the beginning of a bold play by one of the world’s largest companies to launch global money.

I’ll be tracking the stablecoin’s design closely. How decentralized will it be? Will Facebook be able to unilaterally freeze or take away coins from users? Is every dollar in the system backed by real assets that Facebook owns? Design choices such as these will be key factors in whether this initiative succeeds or if it’s another failed attempt by the company to disrupt payments and personal finance.

Brad Stephens, partner at Blockchain Capital:

Stablecoins are necessary infrastructure for our ecosystem, but they don’t get me excited. Thus, neither is Facebook’s stablecoin move exciting- but what lies beneath the announcement has me ecstatic. Facebook touches over one billion people, of which 100’s of millions of these users don’t have access to financial services. So what has me excited is about financial inclusion, and Facebook’s ability to bring hundreds of millions of new users into crypto via becoming the world’s largest global bank… and the first baby step is this stablecoin.

A lot of Bitcoiners and venture capitalists, when presented with the proposition of a permissioned blockchain (note: invented by the company I co-founded, Monax, in 2014), feign ignorance or make a big show about how useless that technology is when compared to a “regular old database.” See e.g. Fred Wilson’s blistering hot take where he said that my involvement in permissioned chains “tells me all I need to know about you.”
 
I agree with Fred there. By treating blockchain software as sui generis rather than comparing it like-for-like with software as it is used in current enterprise contexts, these critics fail to understand how insecure “regular old databases” are and how much effort is required to secure them. 
 
As my friend Perry Metzger put it, “computer security is warfare. No, really, it’s war. There’s an opponent who doesn’t care about you, doesn’t play by the rules, and wants to screw you as fully as possible… in warfare, you don’t survive if you’re second rate. You die.” Where money is concerned this is, even more, the case as compromising a software system that deals in money are a huge incentive for an attacker.
 
Pierre Rochard, co-founder of Satoshi Nakamoto Institute:
 
As described, Facebook’s Stablecoin is an attack on the Indian government’s monetary sovereignty. Will Facebook’s Stablecoin be resistant to the inevitable backlash from the Indian monetary authorities? I’m skeptical, it seems to be too centralized.

The post “It would both be over-rated and under-rated:’ We spoke to some of the top crypto experts about Facebook’s reported stablecoin — here’s what they said appeared first on The Block.


“It would both be over-rated and under-rated:’ We spoke to some of the top crypto experts about Facebook’s reported stablecoin — here’s what they said written by Frank Chaparro @ https://www.theblockcrypto.com/2018/12/23/it-would-both-be-over-rated-and-under-rated-we-spoke-to-some-of-the-top-crypto-experts-about-facebooks-reported-stablecoin-heres-what-they-said/ December 23, 2018 Frank Chaparro

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