How to profit from the now likely failure of Facebook Libra. 

Move fast and break Facebook. It will soon be conventional wisdom that Facebook Libra will fail and you only make money before the herd catches on. In this article, Daily Fintech Subscribers learn why Facebook Libra will likely fail and who/what will win if Facebook Libra fails and how to profit from that.  Bernard Lunn […]

The post How to profit from the now likely failure of Facebook Libra.  appeared first on Daily Fintech.

Who bought a seat at the table of the Libra Association

 Governance, Financial Inclusion, India, Tier 3 economies, remittances, payments, currencies, tokens, coins,…

These and more terms have been tossed around over the past few days, as we consumed facts and interpretations, triggered from the Libra white paper and all the related communications around it. As the dust settles down from the initial reactions, there are several overlooked aspects of the LIBRA plan that merit looking into.

Confession No. 1

There has been an explosion of cynical, partisan, and hyped threads of discussion. I include myself in the humans that reacted rather emotionally to the communication of the LIBRA plan. My `button` was pushed when the `financial inclusion` intention seemed to be the branding and PR storyline.

Dr. Cathy Mulligan and her collaborators called for caution in their Digital Cooperation report for the UN High-level panel  (UNHLP) about using vulnerable communities to experiment on with #digitaltechnologies. Of course, `experimenting` is subject to interpretation and in the case of Facebook, maybe they can argue that this will be their second attempt in financial inclusion – as they did attempt to launch in the booming Indian market to offer seamless, cheaper payments like in any messaging app. Admittedly,  payments are the very heart of any economy and we do live in a world that customers expect payments to be like WhatsApp messages[1].

Confession No. 2

We are not ready yet for DAOs. Thomas Power, rightly says that we need a Face to each and every scalable unicorn (every system needs a Face, at 8:30 BloxLiveTV). And the truth is that there is a problem with the Face behind Facebook, even though #DeleteFacebook led nowhere.

However, sentiment is not on our side, on this one. We, the ones that don’t forget Cambridge Analytica, fake News, propaganda, and what Chris Hughes or Sean Parker or Chamath Palihapitiya said; we are outnumbered. Let’s admit it.

The masses that send and receive remittances, and the masses that spend online to buy inexpensive items – micropayments – value access and convenience. While we, the ones that have a problem with the Face, are in another phase altogether, with more choices and the luxury of discussing governance, social responsibility, public scrutiny etc.

We have to acknowledge that foundations and associations (two different legal entities) setup in Switzerland have credibility and thus, the registration choice for LIBRA association. However, we need to also admit that this Swiss branding that has been deployed in another `alternative` use case – to accommodate legally the needs of blockchain startups to launch ICOs – still has to prove itself in the governance field and in the ways it links to the for-profit businesses that are their raison d` ȇtre.

As Kathryn Haun, general partner at Andreessen Horowitz (one of the 28 founding members) pointed out[2], the Libra Association, will focus on governance issues debating decisions around how the new digital currency will be overseen etc. Swiss associations and foundations are not legal structures that were meant to spearhead such large business initiatives and that is the reason that Kathryn Hauna says “I think of it as a constitutional convention; you have all these different states coming in trying to form this union.” Dianne Schepers, a legal executive, explained to me that foundations are supervised by the Swiss Federal Supervisory Board for Foundations (ESA) and are required to be registered in the commercial registry and provide an annual report. Associations are not subject to any of these requirements.

As the 28 founding members will be discussing governance and much more about LIBRA, I feel that the composition of this association was overlooked (as other more basic items needed tending). It was actually – and rightly so – welcomed and the sentiment was positive because it has a decentralization flavor to it.

Confession No. 3

One of my first emotional reactions while reading the facts reported from Verum Capital – Your guide to Libra – on the day it hit the market, was to ask three questions:

Q1: For how many of the 28 founding members has financial inclusion been their business?

Q2: How many of the founding members have unsuccessfully experimented at scale in financial inclusion?

Q3: Which organizations were invited to consider being a founding member? And who decided this?

I share with you today my initial findings (more research and patience is needed to address them all) from looking closer to the founding members that each `coughed up` $10million

There are 7 members from the financial sector and most of them need no introduction.

  1. Visa
  2. Mastercard
  3. Paypal
  4. Stripe
  5. PayU has a large footprint in Latam and India that goes beyond payments.
  6. Mercado Pago, is the financial arm of MercadoLibre an Argentian company incorporated in the US (NASDAQ: MELI) running various online and ecommerce businesses. MercadoPago is a tech enabler with a significant footprint in Latam, for online retailers to provide their customers with payment solutions to pay in installments
  7. Calibra – is the startup, separate Facebook, wallet and dashboard entity

Discussing the composition of the founding members with Verum Capital, it became clear that none of the top 5 remittance players were invited. Xoom ranks 6th and was bought out by Paypal in 2015. LIBRA has included the 6th global remittance player as a founding member.

saveonsendSource: SaveOnSend.com

There are 4 members from the Blockchain space. Coinbase and Xapo, need no introduction. I do confess that I had to check out the others. BisonTails was only setup in Oct 2018 in the US to focus in blockchain interoperability and has only $5.3mil in seed funding[4]. Anchorage is a US start-up launched in 2017 focused on digital asset custody for institutional investors with a Series A funding completed (total funding $17mil).

  1. Coinbase
  2. Xapo
  3. Anchorage
  4. Bison Trails

Where did Bison Trails find the $10million membership fee to participate in the LIBRA association? Why did Anchorage decide to spend 60% of its total funding up to date, on its LIBRA membership?

There are 4 members from the VC world, which a priori seems a sector weight that I cannot rationalize (help is welcome; please comment).

  1. Andreessen Horowitz
  2. Union Square Ventures
  3. Ribbit Capital; a US early stage VC with the most fintech unicorns in the portfolio
  4. Thrive Capital another US VC more focused in tech investments and is well known for raising capital from institutional investors, like Princeton University, Wellcome Trust. According to a profile in Forbes, Thrive was one of three firms (joining Sequoia Capital and Greylock Partners) to invest in Instagram’s $50 million Series B round at a valuation of $500 million. Forbes wrote that after Instagram sold to Facebook, “Thrive had doubled its money in 72 hours.

Picture1.png

Source: Ribbit, A16Z Lead Fintech Unicorn Hunters, CB insights

Andreessen Horowitz is an investor in Bison Trails (one out of seven) and a lead investor in Anchorage. Thrive is family to the Facebook family. USV is family to Coinbase, and on and on.

Three out of the five top VC are founding members of the LIBRA association. Top VCs can be measured in several ways. What is more relevant here is their Fintech footprint.

There are 3 members from the e-commerce space. Ranging from travel, to luxury fashion.

  1. Booking Holdings
  2. eBay
  3. Farfetch is the online luxury fashion e-commerce business, publicly traded NYSE: FTCH

Two online hailing businesses and one music unicorn

  1. Lyft
  2. Uber
  3. Spotify

Two telecoms with Iliad being a founding member that is losing clients and revenues but has a founder and still majority shareholder (billionaire Xavier Niel) who loves challenging the corporate establishment and is the founder of the StationF, one of the biggest startup campus.

  1. Iliad is a troubled French telecom whose stock price has been in a steady bearish trap over the past 2yrs (-47% yoy). It has launched discount services and expanded recently in Italy.
  2. Vodafone

There are 5 members that are non-profit organizations:

  1. Kiva, Kiva Microfunds is a 501 non-profit organization founded in 2001 in San fransisco that has arranged  $1.3 billion of loans in 78 countries. They have a 96.9% repayment rate which makes them one of the most successful microloan NGOs.
  2. Mercy Corps is another US NGO focused on humanitarian aid launched in 1980s it boasts over 5,500 volunteers members.
  3. Women’s World Banking a US based NGO supporting microfinancing institutions
  4. Creative Destruction Lab; is a seed-stage program in North America launched in 2012 by the Rotman School of Management (the business school of the University of Toronto)for massively scalable, science and technology-based companies.
  5. Breakthrough Initiatives is a scientific non-profit launched in 2015 with several programs that aim to answer big  questions, like life beyond earth, through scientific and technological exploration, probing the big questions of life in the Universe. The Board has two members: Yuri Milner, who funded the initiative and Mark Zuckberg. Stephen Hawkins is still listed.

Wrap up

Confession No. 4

I continue to look into the issues raised by the boldness and the potential of the Libra coin (which has huge regulatory risk). LIBRA has actually a huge PR and branding problem, as even the MIT Tech Review article and many more, refer to the LIBRA Stable coin as the `Facebook coin` Facebook’s Libra: Three things we don’t know about the digital currency.

David Marcus, spearheading the Libra project for Facebook, had to denounce rumors that the $10 million buy-in got the validating firms access to transaction data (Decrypt).

There are 28 seats around the LIBRA table for now (similar to the way Stellar started off with 30 nodes). The LIBRA coin is not a Facebook coin. However, governance in an association is legally non-existent. So, for now we need to be clear that it is in good faith and only by giving the benefit of the doubt, that the LIBRA association has a dream and we should be watching their execution closely.

David Siegel through his new endeavor Cutting through the noise shared several facts and insights on LIBRA, as he is excited about the potential of a Stable coin  that can scale fast as it will be launched in established markets. LIBRA will be offered to all users on Facebook, Booking, Lyft, Paypal, Farfecth, …..

During his webinar on Saturday (recording on youtube) I learnt that 60% of votes are needed in order to make a change in LIBRA. I like to think of this as the 60% attack nightmare.

Can Facebook pull off a 60% attack?

As Bernand Lunn said to Swissinfo.ch the day after,  in What does Facebook’s Libra cryptocurrency aim to achieve?: “Facebook has been hugely successful making money from accumulating people’s data and then selling it. It’s hard to see them completely changing their stripes.”

How will the LIBRA association untaint the LIBRA coin so that it is not thought of as a Facebook coin?

[1] Excerpt from `Money is a claim on an Institution and the reason for change`, Efi Pylarinou

[2] Andreessen Horowitz: How Facebook’s Libra Cryptocurrency Will Be Governed

[4] Source from Crunchbase

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. 

 Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

$2 Trillion – India payments rise force regulators on data protection

161129150332-india-cashless-payments-780x439

Image Source

2016 was a pivotal year in India’s digital economy. Demonetization was deemed a execution failure by many experts. However, it has triggered a digital payment boom in the country. In the last two years, transaction sizes in India have grown 50 times to $2 Trillion (143 Trillion INR). Some claim demonetization wasn’t the reason for the payment boom. If not causation, there is definite correlation between the two.

When we talk about Asia Fintech/Payments, China’s $40 Trillion market perhaps takes precedence over the other economies. However, if India continues to grow at the current pace, we may see yet another leap frogging Asian Fintech economy. I must confess, I was pretty excited when I first read about the 50X growth of the payments market.

Several global players have set up shop in India. Google, Amazon and Alibaba have all taken part in the payments boom in different ways. While these tech giants keep clashing, the Indian government has led the way in setting up the core infrastructural elements through the Unified Payments Interface (UPI). This is perhaps one of the few instances where a government has pioneered innovation at this scale.

I recently spoke to Elizabeth Chapman, CEO of ZestMoney – a fintech lender in India. As a Westerner, now running a startup based out of India, she is perhaps best suited to assess the developments there, especially in comparison to the west. There were two key developments she was very pleased about.

One, getting a digital identifier for 1.3 Billion people. Getting the Aadhaar programme up and running in under two years, was no mean feat. The data base has been linked to several governance aspects, like tax for example. The other development Liz was impressed about was the UPI, which has catalysed the payments boom.

Now coming back to India payments, Facebook is a key player. Whatsapp payments was tested with a limited audience in India. While the uptake was very good for the functionality, regulatory support was missing. The Reserve Bank of India (RBI) initially came up with a rule that customers’ payments data can’t be stored outside of India.

The Government of India also imposed a rule that any data classified as critical personal data cannot be stored outside of India. Most international technology firms have expressed their dissatisfaction with these data protection rules. One of the key reasons why Whatsapp Payments didn’t take off in India was because of this rule.

In an emerging markets context, consumers care less about data protection and privacy. As long as they get to be part of the banking system and the financial ladder, getting paid is all they care about. Which is why QR codes and PayTM wallets have become so commonplace on Indian roadside shops.

cashless_Reuters

Image Source

In a recent Linkedin conversation, one of the comments were about decentralised ways of storing assets in a wallet. It is a great concept in the west, and I love to talk about it till the cows come home. However, this was hyped as a great development in an emerging markets context. I don’t believe that is true.

Emerging markets consumers DO NOT care about decentralisation. I am not talking about the college graduate in south east Asia who is writing a Blockchain and has 10 different wallets to store cryptos.

I am talking about the lady who is selling the turmeric in the picture above. All she cares about is an easy way to get paid, so that she can cook dinner for her kids, and pay their school fees. They care about how inflation could take away all their wealth in Latin America and parts of Africa. Therefore, a solution that solves their day to day problems will see massive uptake.

We have already seen the rise of digital payments in India. With the removal of these data localization rules by RBI and the Government of India, there will be more explosive growth. With Facebook’s Libra (Sorry, couldn’t help mentioning it) around the corner, getting rid of the data localization rules, may not necessarily be a bad thing.

For Facebook, India is the biggest market – be it based on population or internet growth, or middle class income or financial inclusion. All the metrics point to India for Facebook.

For me, Financial Inclusion comes ahead of Data Protection. We thought Identity with Aadhaar – we didn’t think decentralisation. Let’s get them all on to the next generation payment network, get an economic identity created for them. Data protection, privacy and decentralisation will soon follow as awareness of the risks of the digital economy becomes more prevalent. For now, let us just help the lady selling the turmeric get paid.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).


 

10 Takeaways from the Facebook Libra announcement

LIBRA.001


TLDR. Will the Blockchain Economy be acquired by the Facebook Economy? Tuesday’s announcement by Facebook ranks as the 3rd big event in the 10 year history of the Blockchain Economy (the first two being the Bitcoin and Ethereum white papers in 2009 and 2014).

This update to The Blockchain Economy digital book covers:

  • The biggest losers will be global banks

 

  • Move will get a lot of traction with developers (despite many negative technical reviews)

 

  • We have all contributed a lot of free brainstorming and market testing for their future product.

 

  • Libra is a stablecoin with unknown constituent parts

 

  • Facebook’s delicate dance with regulators

 

  • They have brilliantly coopted the regulated Legacy Finance world as Nodes

 

  • Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream

 

  • The Calibra wallet will probably drive mainstream adoption of Bitcoin 

 

  • There are lots of opportunities for agile entrepreneurs but never forget who owns this playground

 

  • XRP just became a lot more risky and be careful investing in ETH 

1. The biggest losers will be global banks

Facebook Libra will obliterate the bank’s advantages in three ways

  •  A Stablecoin switchboard is vastly more efficient than today’s interbank foreign exchange market. What I mean by a Stablecoin switchboard is that all currency prices are quoted against the Libra Stablecoin price. Oops DB!! This comes at a horrible time for Deutsche Bank (DB) which many think will be the next Lehman due to their massive derivatives exposure. One area of strength for DB amid all this turmoil is their dominant position in the today’s interbank foreign exchange market which will now be disrupted by the Libra Stablecoin switchboard.

 

  • Facebook has a global footprint without any of the overheads of global banks. I observed how global banks were replacing the correspondent bank network at SIBOS Geneva 2016. If you have invested lots of money over many decades building a physical branch network around the world, Facebook’s global reach looks hugely threatening. This is big threat to banks such as HSBC and JP Morgan. The latter created JPM Coin specifically for payments across the JPM network. 

 

  • Libra eliminates the need to use the banking system to move money. You move Libra and then either pay in Libra or convert to your local currency via the Stablecoin switchboard. 

David Marcus, the very smart leader of this part of Facebook, has been super articulate and on message in interviews. The only point where he looked a bit uncomfortable was when asked why no banks participated. Grab your popcorn folks, this one will be epic.

2. Move will get a lot of traction with developers (despite many negative technical reviews).

Move is the programming language on the Libra blockchain. There is much commentary that it is not as flexible and open as programming on Ethereum or other similar open consensus networks. Despite these negative technical reviews, I predict that Move will get a lot of traction with developers for two reasons:

  • Move is safer. An inexperienced developer is less likely to make a rookie mistake using Move that costs a lot of money (eg a DAO like hack).

 

  • Move brings you scale aka more users today. Why do you program mobile apps in IOS? Technical excellence is less important than the fact that Apple sells a lot of mobile phones.

3. We have all contributed a lot of free brainstorming and market testing for their future product. 

Myself included – no, Facebook did not pay me for this analysis.

Tuesday was the start of  Step 3 in a 5 Step dance

Step 1. Recruit David Marcus. This happened in 2014. I wrote about Facebook Ambitions in Fintech at that time and correctly identified the direction of travel ie where the puck was headed. How long they spent in planning took me by surprise but now, seeing how well they have planned it and the scale of the ambition, it makes sense.

Step 2. Create a plan. Facebook has spent 5 years on this plan. It is a) very well thought through b) existentially critical to a $500 billion market cap company. 

Step 3 Run it up the flagpole. This what they did on Tuesday. All of us have given Facebook a ton of well considered feedback aka free market testing and brainstorming and we will continue to do so in the weeks and months ahead. 

Step 4. Adapt based on this feedback.  The feedback already includes howls of protest from privacy advocates. Crypto folk are certainly privacy advocates; so we can expect this phase to be very, very noisy. Facebook will have planned for this. Based on past Facebook launches, we can expect them to:

  • first, take one step back. Facebook issues a sort of apology and it appears as if privacy advocates win. 

 

  • then, take two steps forward. A little later, Facebook quietly does what it intended to do in the first place, tweaking it to allow for the step back.Watch the $FB stock price – that will be the signal among all the noise. If investors believe that Facebook has no control over private data, they will sell the stock.

Step 5. Launch & execute in 2020

4. Libra is a Stablecoin with unknown constituent parts.

Critical to their very well thought-through plan is the use of a stable cryptocurrency in the Stablecoin switchboard that I described in Takeaway 1. Interestingly enough, considering how critical this is to their plans and how much detail there is in other parts of the white paper, critical details, such as what Fiat currencies are in the Libra currency basket, are missing from the white paper.

That is why Daily Fintech created the GOSCI – Global Open Source Currency Index as an independent volatility benchmark for Stablecoins. If a Stablecoin claims low volatility, one should be able to measure that volatility against other Stablecoins.

5. Facebook’s delicate dance with regulator

Facebook’s delicate dance with regulators has three clever pieces:

  • Self sovereign ID.  Page 9 of the white paper says “We believe that a decentralized and portable digital identity is a prerequisite to financial inclusion and competition”. Governments have historically controlled Identity artefacts such as passports, work permits and drivers licenses. The Facebook deal with Governments  might be to allow Facebook ID if that meant that only real ID people can use Libra (and acceptable to users if the ID is controlled by user ie it is self sovereign ID).
  • Giving regulators control of the on and off ramps. This is a trojan horse for regulators. If Libra becomes an independent Unit Of Account (get paid in Libra and pay in Libra) the on and off ramps will become relics of history.
  • Using regulated entity partners to provide customer facing services (such as on and off  ramps). This means Facebook does not need to become regulated as a financial entity itself.


Facebook’s delicate dance with regulators over Libra needs to be seen within the wider context of Facebook being regulated as a dominant social media platform. They can now say “see, we are not dominant within the wider market of financial services, so a break up should not be on the cards”. 

6. Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream.

Like most crypto early adopters I am a bit of a “privacy nut” but I am under no illusions that my opinion will matter to Facebook. They know they cannot meet the 5 five pillars of open blockchains as defined by Andreas Antonopoulos: 

  • open
  • public
  • neutral 
  • borderless 
  • censorship resistant.

Without those 5 pillars you will never win over the crypto early adopters. With most launches that would be game over, as the only route to market is via the early adopters. Facebook is taking Libra direct to the mainstream users who don’t give hoot about those 5 pillars.

The irony today is seeing crypto early adopter cypherpunk libertarian types happily saying that Libra will be stopped by regulators.

7. The Calibra wallet will probably drive mainstream adoption of Bitcoin

I say “probably” because this is dependent on Calibra wallet allowing coins  other than Libra. I think this will happen because a single coin wallet will not be popular unless Libra is the only currency/coin we ever use. If Calibra wallet allows coins other than Libra, it will introduce millions of new users to Bitcoin.

8. They have brilliantly coopted the regulated Legacy Finance world as Nodes.

The list of partners leads people to a conclusion that Facebook can only win, that it is game over. Yet many of the partners have more to lose than to gain. For example credit card networks will lose if payments moves to crypto and VCs will lose if Facebook has too big a hold on crypto innovation and value creation. It remains to be seen if these are PR partners or real partners. In a PR partnership, both parties get something but don’t have much skin in the game.

9. There are lots of opportunities for agile entrepreneurs but never forget who owns the playground.

Libra is like Apple creating the Apple Store, a defining moment full of opportunities for agile entrepreneurs. As long as you never forget who owns the playground, your business won’t be obliterated when/if Facebook changes the rules.

10. XRP just became a lot more risky and be careful investing in ETH 

Ripple wants to enable cross border payments via banks. Some banks will run into the arms of Ripple because they are scared of Facebook, but what was a risky speculation pre Libra (can Ripple persuade banks to use XRP) just had another layer of risk added (if banks can be persuaded, can they beat Facebook?).

The ETH Ethereum story is more nuanced. The total openness of Ethereum means that there maybe use cases nobody ever dreamed of (ICOS and CryptoKitties was not part of Ethereum plan in 2014). Yet a platform like Libra can attract lots of less experienced developers who want to win over Facebook’s 2.4 billion users.

Context & References

Investing in Payment Tokens and Stablecoins (aka new currencies).

Why StableCoins are so important (but also so hard to get right)

Facebook Ambitions in Fintech (note, from October 2014)

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

What the rise and fall of Basis Stablecoin tells us about the future of corporate Stablecoins such as Facebook GlobalCoin

———————————————

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

Eras .001

TLDR. Facebook’s move into crypto enabled payments has led to hyperbolic reactions that Bitcoin will be roadkill in front of their thundering truck. This post argues that we are nearing the end of the Facebook era and that the Bitcoin honey badger is not scared of Facebook and that Facebook is moving into dangerous territory where they will be competing with other behemoths.

This update to The Blockchain Economy digital book covers:

  • What we know and don’t know about Facebook’s stablecoin
  • Bitcoin is the honey badger that is not scared of Facebook
  • Big players who will feel threatened by Facebook
  • The end of the Facebook era is coming
  • No, don’t short Facebook, yet.
  • Which companies should be most worried
  • Context & References

What we know and don’t know about Facebook’s stablecoin

The news outlets did a copy/paste on Facebook Press Release. Plus we get the salacious factoid that Mark Zuckerberg spoke to the Winkelvoss Twins.

PR also tells us that all doors are open to Facebook, telling us about conversations with:

  • Bank of England governor Mark Carney.
  • Officials at the US Treasury.
  • Western Union.

Facebook has the clout to talk to anybody on the planet, not matter how high and mighty, but talk is cheap.

What we don’t know:

  • what will be the the real name of Facebook’s stablecoin when it finally launches? PR says it is “internally dubbed” GlobalCoin but that is too close to GlobalistCoin and that does not play well in the cyperpunk/anarchist/libertarian crowd that loves Bitcoin. There is a cute sounding internal name which is Project Libra, which maybe more consumer friendly.

 

  • When Facebook will launch. PR says “first quarter of 2020”.

 

  • Where Facebook will launch. PR talks about “in a dozen countries”. Earlier PR in December 2018 talked about India as launch venue.

 

  • What Facebook will launch. It will be a cross border digital payments system aka a remittances system.

 

  • Which Fiat currencies they will peg to.

There is lots of negative sentiment. You can expect this from the privacy and crypto crowd. It must be more worrying when Bloomberg, which is hardly known for bleeding heart anti establishment ranting, has this headline:

Dr. Evil Would Love Facebook’s “GlobalCoin”. “More than 2 billion users spending one currency, controlled by one billionaire. What’s to worry about?”

Facebook’s strategy in the past with negative sentiment has been to take one step back, issue an apology, then proceed to do exactly as they had planned. However that may not work today, because Facebook’s Stablecoin is between a rock & a hard place. Bitcoin is the rock. The hard place is all the big players who will feel threatened by Facebook. 

First the rock…

Bitcoin is the honey badger that is not scared of Facebook

You cannot shut down Bitcoin. Facebook can lobby Governments all they like and Governments would love to shut down Bitcoin and do deals with Facebook, but you cannot shut down a decentralised permission less network. You need a CEO that you can pull onto the carpet and grill.

Next, the hard place….

Big players who will feel threatened by Facebook 

The hard place is all the big players who will feel threatened by Facebook.

This is a huge move by Facebook. They are moving well beyond their media comfort zone into currencies, payments, remittances and e-commerce. The big players in those markets, including Governments, will feel threatened by Facebook’s move into their territory.

The end of the Facebook era is coming

You can see trend from the chart at the top of this Chapter (based on research by Daily Fintech) – the dominance years are getting shorter. Our thesis is that decentralization won’t lead to one dominant company because dominance is a feature of centralization. In the decentralization era, dominance may go to a leaderless open source protocol (Bitcoin), with many companies thriving within the ecosystem created by that protocol.

I never got the Facebook habit. I am as addicted to social media as the next 21st century human, but my social drugs of choice tend to be blogs, Twitter, Whatsapp, YouTube, & LinkedIn. Occasionally I can only see something online if I have a Facebook account. So I set up a fake account and enjoy the recommendations I get from that fake account where I am a woman born in 1997 in Chiang Mai, who now lives in Mongolia and who studied Thermodynamics at The College of Hard Knocks. My bio says “FB algos do not deserve to know me”.

The usual way that big tech eras come to an end is a mix of:

  • Regulation. That is happening to Facebook in Europe and China and there is even political pressure in America
  • Disruptive Technology. In past eras, the regulators jump on board just when disruptive technology is doing a much more effective job. For example, IBM could manage regulators but could not control PCs, Microsoft got sideswiped by the Web, Google by Social. In the coming transition, centralized services will be replaced by decentralized services.

Facebook the service is no longer cool, even if Facebook the company controls the two biggest competitors – WhatsApp and Instagram. Soon Facebook the service will be a digital landfill populated by:

  • Institutions selling you stuff. Institutions, both political or corporate, use pinpoint personalised marketing to make sure you buy/vote what they want. My little messing with Facebook’s algos is not likely to do them much harm, but billions tuning out ads will damage them at some point.
  • People willing to view ads for a fee. Pay to view ads is desperate race to the bottom by sites with low quality content. Advertisers get the attention of the people with the least money or influence brought in by Mechanical Turk to compete with robot scam traffic.

No, don’t short Facebook yet.

Mark Zuckerberg is one is the greatest entrepreneurs of all time. He has navigated one big disruption before. When mobile threatened the Facebook franchise he solved the problem by buying into the game at great cost with the WhatsApp and Instagram deals.

So, don’t count him out. He could pull it off with GlobalCoin. The odds are against him because this disruption is different:

– mobile changed delivery front end but the core concepts of centralized data to sell advertising remained valid.

– Decentralized Blockchain networks challenge the core concepts of centralized data to sell advertising.

It is inconceivable that Facebook, which has a market cap of over 500 Unicorns (ie over $500 billion), could head into a deep decline. Look at past eras and the dominant company of the day looked equally invincible.

Although Facebook’s long term decline is inevitable, don’t try shorting Facebook stock yet as there is a big difference between inevitable and imminent. 

There are companies that should be worried by Facebook’s move into crypto-enabled payments. They could be accidental roadkill as Facebook searches for relevance in a game that they no longer control.

Which companies should be most worriedWhich companies should be most worried

A. Decentralized social media companies funding via Tokenomics such as Steem and Brave. Content creators will prefer to be paid in either Bitcoin or a reputable Stablecoin from a neutral player.

B. Remittances companies such as WorldRemit and Western Union. The latter may do OK as Facebook will need their off ramp into local Fiat, but that will be a hugely reduced role.

Context & References

Facebook Ambitions in Fintech. Note date (2014); over 4 years ago we were forecasting this move by Facebook.

The PewDiePie deal with Dlive is a big move forward for decentralized Blockchain media.

Why I am closing my Steemit account and why I am a bear on EOS.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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FB doing a Tencent – Cryptos mainstream adoption in sight?

We have had a record breaking February in the UK weather-wise. One of the days in Feb saw temperatures go up to 21 degrees Celsius. While the cold has returned a little bit, it seems winter is largely done. I get that sense with cryptos, as large institutions one after another are announcing projects, and it only takes one of them to take off for cryptos to go mainstream.

Messaging applications thinking of launching their own cryptos is nothing new. Telegram and Signal have been at it for sometime. However, it is a bigger deal when Facebook looks at introducing cryptocurrency based payments on Whatsapp. The size of the opportunity for Facebook and their partners when the platform is Finteched will undoubtedly get them out of their issues they have faced over the past 24 months.

The Facebook Opportunity

Facebook has two problems to solve, and both potentially powered by Blockchain.
Facebook’s Blockchain team has been spearheaded by former PayPal president David Marcus since last May. In order to replicate Tencent’s successes, they need to leverage the user base of their apps (FB, Whatsapp, Instagram). Bringing payments to Whatsapp would have have been a good starting point, however Facebook’s attempt at doing that in India (the largest Whatsapp) hasn’t gone too well.

About 1 Billion people in India have a mobile, and about 300 Million of them use Whatsapp. Last year, Whatsapp pay launched in a controlled fashion to 1 Million users in India. They used the government backed UPI (Unified Payments Interface), and during the pilot, they achieved about a Million transactions per month. However, the regulators weren’t happy that the payments engine was on Facebook servers. They wanted the servers to be in India, and despite several conversations there is no solution.

The payments market in India is a $1 Trillion market by 2023, and it would be a shame if they missed the bus.

Facebook is looking to create a stablecoin attached to a basket of currencies. There is a team of about 50 people working on this project. If FB planned to use the Indian market as a testing ground for the crypto-powered Whatsapp pay, they may now have to deal with the crypto currency regulatory ban too. However, if they managed to clear the regulatory hurdle, their growth could dwarf the likes of PayTM, and that would just be the start. On top of it, Indian remittance market boomed to $80 Billion last year. If I could use whatsapp to send money to my mom, that would be awesome!!

The other issue that FB has had is around data privacy. With identity management being one of the key concerns, FB saw record number of millennials leave their platform last year. However, with a Blockchain powered Self Sovereign Identity engine, Facebook connect could redefine it’s position with data privacy as a distributed identity management platform.

How decentralised it (the identity engine) will stay if launched is another challenge. Most federated and decentralised identity management engines have ended up creating a centralised monopoly in the past. With Blockchain behind the scenes, one would expect that to be different.

Will Facebook replicate Tencent inspired successes through Whatsapp? Will FB change perceptions through a genuinely decentralised identity engine? Would 2019 be the year of mainstream adoption of cryptos? Watch this space.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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