On March 1, the New York Times reported that Facebook will issue coins in 2019, and the carbon chain value was first translated in the Chinese community. Whether it is for the blockchain industry or the financial industry, Facebook currency is a big deal. However, at our “Carbon” salon, Gu Yanxi, a stable currency scholar, believes that Facebook’s currency is likely to fail in the end.Why is this? For the answer, please see the full text.
I am very happy to share with you my views on Facebook’s stable currency business today. First, let’s take a look at this Facebook-related news release, because Facebook has not released a stable currency strategy related announcement, and there is no detailed information available on the market, so only some of the information revealed in the news can be used as the basis for research.
First of all, Facebook is to develop its own stable currency, and it is a stable currency linked to the three countries’ legal currency. This is not the same as the existing stable currency on the market. The USDT, TUSD and GUSD are all issued in US dollars, and one stable currency corresponds to one US dollar. Second, Facebook did not explain what mechanism to use for distribution. This is a big question, because how to issue or generate mechanisms is very important.
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Secondly, in its application scenario, it is reported that India will pay for this aspect, that is, the cross-border remittance market business. The scale of this business is very large, and whether a business-scale facility can support such a business scenario is indeed a big problem. For the carrier of the stable currency, the report said that it will be used on WhatsApp, it is estimated that it may be installed in a digital wallet on WhatsApp, and then cross-border remittance through the Facebook network.
There are also reports that Facebook is now working with some cryptocurrency exchanges. This is actually a bit unclear. Why do you have to buy and sell stable coins, which has anything to do with their possible remittance business? So this is for further observation. In this way, the application scenarios and funds of the stable currency are not ready in many aspects, so this strategy of Facebook is still a basic guess.
Finally, Facebook did not mention the strategy of stabilizing coins in some recent speeches, either because of confidentiality or because they are trying, so there is no official announcement.
01 History of money
Facebook’s stable currency is particularly risky. To understand this, we must first talk about the mechanism of the stable currency and the history of the currency.
Money was originally a medium for exchange of rare items. Later, people switched to gold and silver as a means of circulation. The currency at this time was called commodity currency. Later, with the emergence of modern society, credit currency began to appear. Initially, banks used to use the prestige to issue coins. For example, a silver ticket against 100 yuan and two silver coins would give you 100 silver coins as long as you exchange silver tickets. . Usually there is enough money to make mortgages and reserves to cash in some silver tickets. However, some banks later discovered that they could actually issue more bills, and they did not need to be fully mortgaged.
Later, due to the government monopoly, credit currency gradually became popular. The dollar is now actually a credit currency. After decoupling from gold in the early 1970s, the dollar was based on credit. But there is a big problem with credit currency, that is, currency issuance is basically without any restrictions. The super-discovery we see now is the embodiment of the credit currency problem. This is the evolution of money.
Then there is a banking system corresponding to the currency. Commercial banks cannot now issue credit-based currencies, and only credit loans are conducted under the guidance of the central bank. But in fact, most of the currencies currently circulating in the market are generated by commercial banks through credit loans.The currency directly issued by the central bank actually accounts for less than 10% of the total market currency, or even less than 5%. This is the current currency and banking market structure.
02 Analysis of the mechanism of Facebook’s stable currency
So if you understand these, we can analyze the mechanism of Facebook’s stable currency. There are two kinds of stable coins in the market. One is based on legal mortgages. This stable currency is actually the digitization of legal currency. Like USDT, TUSD and GUSD, this method is needed. Such a digital stable currency can only be issued if the bank has a mortgage. This method is relatively costly, because you need to deposit a 1:1 deposit in the regulatory bank before you can use such a digital currency, which is a mortgage development.
The other is a truly developed stable currency, based on digital assets, distributed in a distributed manner, and does not require bank credit to issue real digital stable coins. This way represents MakerDAO. MakerDAO is based on ETH as a mortgage, distributed in a distributed way, without any human involvement. It has a fixed mortgage rate, such as a 150% mortgage rate, against the US dollar against Dai.
Which of the two modes is Facebook most likely to adopt? Facebook not only competes with the existing stable currency in the market, it also has to compete with the legal currency, and now there is no digital version of the legal currency, so in some applications, the stable currency issued by Facebook will be the same as the USDT stable currency. . However, this stable currency issue has a big problem. I estimate that in these two ways, Facebook is using the legal currency as a mortgage to keep it issued. If it is considered from the payment level, it is not necessarily a stable currency, but more likely a settlement currency.
Since Facebook has not announced its stable currency strategy, we are not sure how it will support its cross-border payment business. For example, is this stable currency also adopting the ERC20 standard and what system is used. On a high probability, I think it is still operating on the basis of blockchain technology.
In terms of business methods, every product needs to have a profit model. Whether Facebook wants to make a profit through the stable currency business or whether it is profitable through the cross-border remittance business in India is still unclear. However, from the current mechanism of the stable currency business, the stable currency will not directly generate profits.
Now the stable currency’s profit model is only based on the legal currency for mortgage. Usually, the sender receives the user’s US dollar to pledge the corresponding stable currency. Earnings from investing in time deposits or money funds are actually very low. Although it is still possible to do if the group of users participating in the mortgage dollar is large, this will be difficult and it will not be easy to be flat.
Facebook will start with cross-border payments, and in fact the cost of cross-border payments is still very high. IBM’s World Wire can actually reduce the cost of existing cross-border remittances. If both IBM and Facebook offer such services, Facebook needs to consider any competitive advantage or just make a small market segment. Because IBM is working with financial institutions, it will give it a big market. After all, IBM cooperation is with banks. Facebook is more operated through the client, and Facebook should consider the question of what kind of approach.
03 Facebook is not suitable for developing stable coins
I don’t think Facebook is suitable for developing stable coins. Regardless of Facebook or WhatsApp, their biggest advantage is that they can directly face customers, and customers often use them directly, which means they have mastered the channels. This is actually a big advantage, it should actually play this advantage and cooperate with other stable currency issuers.
Why do you say that? First of all, Facebook has not explored payments. It has done Facebook pay and Facebook credit, which is the business that the bank is doing, but it has not achieved widespread success. It can be seen that the gene of a company determines what it can achieve.
If it is a simple currency, Facebook can rely on the legal currency mortgage to solve the problem. If you say that you are using other asset collateral to issue money, it needs to mortgage the ability to manage the business. This is actually a bank matter. Facebook has to fight against these financial institutions, in this case, in fact, fewer partners and more competitors.
In addition, Facebook has entered a particularly regulated area, which is not particularly desirable for it.In fact, the supervision of banking financial business is very strong, and many requirements are required. The cost of supervision is very high, especially after 2008. And the whole financial business is characterized by a very good time when the company’s profits and financial losses are good, and bad when it is bad. For example, GE Capital has contributed a lot to GE when the financial industry is good. But since GE Capital is a financial company, the regulatory phase needs it to do various disclosures and comply with various financial-related regulations. Later, due to the risk of financial business and the high cost of regulatory disclosure, GE later divested GE Capital.
Therefore, I think Facebook is now a small stable currency market. For it, Facebook is a listed company that actually enters the stable currency market by its own disadvantage. I think it is not appropriate to be strategic.
04 What is Facebook suitable for in the blockchain era?
Finally, talk about what blockchain strategy Facebook should adopt. In fact, it can do a lot of business in blockchain and encrypted digital assets. The influence of stable currency is very small, and the cost is very high, it is not worth doing.
Facebook can actually make a lot of choices based on its technology and network advantages. Well, everyone knows that there is an exchange in the United States, Bakkt, and Starbucks, and don’t even want Starbucks to pay for the amount of data on client transactions, directly connecting to its large exchanges. The purpose of Bakkt is that its digital assets can be paid for retail at Starbucks, as well as for digital assets and commodities at the Bakkt exchange. Bakkt is so eager to work with Starbucks that it sees its focus on customer channels.
In this regard, Facebook can cover the global network, so in fact it is able to connect to many of the world’s entrances, so it is very strong in terms of reaching customers around the world, you can imagine, if the encryption assets continue to increase, so It increases the influence between Facebook and customers.According to its core competitiveness in the entire market, this can be done in this respect.
In fact, Facebook can have a bigger layout, and now the public chain is in an early time, not very stable. But Facebook now has a strong social user base, so it can build a blockchain. Based on its technical capabilities, there are also ways to develop or collaborate on its own, such as the way IBM and Stellar work together to actually develop a more valuable blockchain. In addition, combined with the identity of the network digital, and master a large number of users, you can establish a user digital identity in the world of blockchain, which is a very important foundation of the blockchain business. Because only by verifying the authenticity of personal information, we can gain the trust of these financial industries all over the world. Everyone knows that the United States now has STO in the early stage, then STO is regulated according to the US Constitution, and its regulations, according to the actual situation. It is possible to finance overseas users, but many overseas users do not know where these qualified investors are. So if it is said that Facebook establishes such a network, the true identity of each individual user in the network and its related qualifications can be confirmed in a blockchain manner, then this is very remarkable.
So to sum up, I think Facebook is already in the era of a blockchain, and it should actually be a blockchain network outside the stable currency. If Facebook cooperates with financial institutions, it is very meaningful to make transactions and payments based on the client; but if it does its own stable currency, it will attract many competitors that would not have been incurred, and it is not the financial supervision. Strengths.
Now that Facebook has not officially announced a stable currency strategy, my current judgment is based on existing reports, and I look forward to Facebook’s next step.