Facebook’s New Cryptocurrency Gets Big Backers
wsj.com
wsj.com
And such a stablecoin exists: https://makerdao.com/en/dai/
It uses collateral, lending and a careful incentive setup to maintain close to 1:1 parity with USD. I haven't looked into the detail, but it seems to have a decent record (of stability).
The first is censorship resistance. And I can assure you that however in the world you set up something backed by a fiat, its controlling government can step in and seize your collateral if and when it pleases and then you're screwed. But you can certainly come up with all sorts of fancy legal speak and marketing pitches to argue otherwise which makerdao is basically doing.
The second is protection from currency manipulation and stable coins solve nothing on that front, but let's assume for the sake of argumentation that people interested in stable coins are aware of that.
hmm -- the collateral in this case is ether. So, unless you feel the US govt can step in and seize all ether in the world, this statement seems unlikely to be true.
What happens if eth tanks in value? Now you'll have $0.10 of eth backing $1 worth of stablecoin. Also, if it's backed by eth, who has custody? If it's the controlling entity, they can refuse to redeem your stablecoin for eth.
1. ETH has tanked in value by basically that large of a drop since DAI has been in existence, and it's held its peg. Recently, I believe some of the parameters that control DAI's stability did cause people some concern given how high they went, but so far, DAI has been remarkably resilient.
2. I believe the ETH is locked in smart contracts, so nobody has custody (although it may be vulnerable to bugs). Not 100% sure though.
3. DAI is moving to a multi-collateral model, so it can be backed by ETH, BTC, other stable coins that are backed by fiat in various jurisdictions, other coins that are backed by gold reserves, etc. That seems like it will make the model much more resistant to the attack that was suggested above -- i.e. that a single government could interfere.
I'm highly skeptical that this actually works.
I'm also not convinced it will work forever, but it has been remarkably resilient to date, even in the presence of the value of the collateral (ETH) dropping 90+% in that time frame.
I still don't see much point given that there are now stablecoins pegged exactly to the USD with audited bank reserves.
In that sense it's like a regular bank with cash... they know their own customers but they don't know where that cash has been.
With a blockchain there is the potential for tainting coins, but you have to know that a particular address was associated with a crime.
In my view, on the privacy/censorship spectrum, a pegged stablecoin is far closer to cash overall than to PayPay or Venmo.
Regulators kind of have to either accept that reality or ban pegged stablecoins entirely. There isn't really an intermediate option. At this point it seems like the genie is already out of the bottle and they aren't like to ban them entirely.
Not really.
Consider an archetypal stablecoin, like Tether or Gemini Dollars. Only liquidity providers at the edge of the payment network need to actually have a relationship with the backing company, like Tether or Gemini.
That's because payment flow is actually tracked by a public, decentralized, pseudonymous blockchain.
So an archetypal stablecoin is basically equivalent to an imaginary "benevolent PayPal" that never suspends or freezes anyone's account and doesn't charge high fees or allow clawbacks; it just works.
That's a marginal improvement over the current state of the art. Maybe just barely enough to gain traction and mass adoption.
After all, it allows reasonably fast international payments to anyone, anywhere.
If Facebook Dollars are implemented in this way, it's promising.
On the other hand, if Facebook Dollars require you to use a Facebook account to send and receive, it's just a re-implementation of venmo or PayPal.
The main thing to keep in mind with stablecoins is that your coins are only worth something as long as the producer (Tether/Gemini/Facebook/etc) is willing to give you actual hard currency for those coins. This gives the stablecoin "bank" total control over the system regardless of how the cryptocurrency is set up. (Similar issues do apply for private stablecoins, but the freezing/suspending will occur per an individual user trying to redeem their currency).
> Tether and Gemini can freeze/suspend anybody's account at any time for any reason with practically no effort if they wanted to.
But only liquidity providers at the edge of the payment network even need to have "accounts" with Tether or Gemini.
> You can even track your blacklisted token amounts through middlemen and mixers.
Yes, coins could be blacklisted, but it's not likely that they would be unless it came to be publicly known that they were associated with a crime.
> The main thing to keep in mind with stablecoins is that your coins are only worth something as long as the producer (Tether/Gemini/Facebook/etc) is willing to give you actual hard currency for those coins.
They don't need to give me hard currency. They just need to give somebody hard currency, and then, only if and when people actually want to redeem cash for the coins (which should be the exception, not the rule).
I don't need to have a relationship with Gemini to spend their coins (whether to get cash out or not) since I can sell the coins for about $1 to someone else who can do that.
This Facebook experiment may indeed just be a Venmo that's connected into their tech+business ecosystem. However, the sheer size of their user base should at least give you pause when claiming this experiment is completely uninteresting.
I hope they call it FaceBuck.
It also is good for shorthand: 10 ZB.
>It is still not entirely clear, even to some members of the consortium, how the coin will work or what their roles will be, people familiar with the project said. Regulatory hurdles in the U.S. and elsewhere are high.
You have to love when corporations and people are so FOMO they will put money into something when they don't even know how it will work.
So this would be more like... the Palm Foleo?
What in the article seems non crypto? That you can't make more out of thin air? It seems like your run of the mill stablecoin, the advantage being transactions would have the ability to be decentralized. How much will need to be seen at official announcement.
> pegged to USD
"which will be pegged to a basket of government-issued currencies"
If the actual, genuine goal is to solve the problem of lack of viable currency in these nations, then the best solution is to solve the cause, not the symptom. Right now your goal is trying to find a nail for a hammer that doesn't have any, and you're trying to shoehorn vaporware onto a symptom when that's not what the people really need.
If so then maybe this would be an ok argument, but this is a massive change to people’s lives that’s being forced upon them without the slightest consultation, and which will almost certainly be used to control and surveil them for Facebook’s benefit.
I can't tell if this is satire. Who's forcing them to do anything? What even is your point here: people shouldn't do things in other countries? Who's even talking about replacing their national currency?
Or, to put how ridiculous that is another way:
> Did the people who live in those countries ask Brian Acton et al to come and replace their national post with one which allows Brian et all to control who they're allowed to message?
> Who's even talking about replacing their national currency?
I’ve heard from people close to the project that this is Facebook’s explicit long term strategy. What else would their end game be here?
Oh, these anonymous sources which are proven to be highly reliable like... never?
> replace national currencies
They can have a strategy but that does not mean they are able to execute on it. Plus, by the time they get to a point where they endanger a local currency they would probably get a national ban in such countries. I mean what would you expect anything else?
In fact, I predict that national governments are going to have to get on board with electronic currencies if they don't want to unwittingly transfer control over their own economies from their national treasuries to a private company.
Indications are that this won't be pegged to USD, but rather to a basket of international currencies. Since there are so many ways to combine a basket of currencies into a single value, this gives Facebook plenty of leeway as to how to price this currency.
Essentially, this is the equivalent of the virtual Facebook nation-state establishing their own federal reserve. More importantly, they've already got buy-in from the major non-governmental players. This will essentially create, all at once, a settlement layer that not only bypasses any individual national government, but also the established banking channels like SWIFT.
The US dollar is the predominant international reserve currency at the moment, and the US government leverages that as a pretty big club via SWIFT injunctions.
If there is an alternative that is ostensibly neutral from a governance perspective, and publicly auditable to prevent arbitrary adjustments/freezes, I could see that being very attractive to countries with a less-than-friendly relationship with the US. We already see rumblings to this effect in US-unfriendly countries: http://fortune.com/2018/07/26/iran-sanctions-cryptocurrency/
Of course, since Facebook is based in the US, it also provides the US government with a nice, local target for legal leverage. But it would also be very easy for Facebook to spin off this as a subsidiary and place it somewhere out of reach, like Switzerland. Perhaps they could call it something like Libra Networks? Wait, that sounds familiar... https://www.reuters.com/article/us-facebook-switzerland-paym...
It would be very difficult to outlaw transactions in a currency when those transactions can be initiated and validated on a blockchain directly by the participants. You'd have to play the whack-a-mole game with access to the chain itself, because with direct validation, you're essentially trying to outlaw barter. Look at the efficacy of the cryptocurrency ban in Venezuela as an example.
Facebook is currently doing an end-run to create the first supranational currency, and it's billion+ users combined with the technological agility (specifically, the lack thereof) of national governments means that they actually have some chance to succeed.
That leaves me really at unease. The Federal Reserve has plenty of its own problems, but it has a history of providing US currency stability.
I doubt an individual foregoing usage of this coin will make much difference in its adoption. Maybe the stability of the US Dollar will still reign superior to this? Paper dollars have their own transaction costs, but come with a lot of nice "enterprise" features I'd like to see in a currency.
There are good things to be said for disruption, but it strikes me as reckless to set out to disrupt the global monetary system, even with the best of intentions.
I'm sure those involved will be making all sorts of assurances as to how everything will be careful, but with a system that's as complex as the global economy it is hubris to think one can accurately predict the impact of this sort of a change.
I don't think it's too far-fetched to imagine a scenario in which adoption of FaceBucks has a not-insignificant impact on some of the world's smaller economies, to whose populations it will no doubt prove useful.
This would change those countries' economic behaviour, and in turn the behaviour of everyone they deal with, rippling through until it also affects those currencies FaceBucks are pegged to.
I don't see such a scenario ending well.
I predict that Amazon will have to release its own currency to guard against Facebook becoming a middle man for e-commerce and becoming a threat to its business. It's only a matter of time.