Reflecting on Facebook's Stablecoin Strategy
The recent G7 statement on global stablecoins has once again drawn the market's attention to Libra. Obviously this statement is mainly aimed at the Libra stable currency. The statement of the G7 clearly and unequivocally shows that the G7 takes a restrictive attitude towards Libra. This is obviously not conducive to the introduction of Libra stablecoins to the market. At this time, it is actually possible to review Facebook's stable currency strategy, so as to be used as a reference for stable currency projects that will surely appear in the future.
When Facebook initially started the stablecoin project, it planned to conduct the project itself. But at the same time also for the cooperation of other companies. According to media reports, potential partners explicitly told Facebook that it was impossible for them to participate in a Facebook-led stablecoin project. Therefore, when this project was launched, this project became a stable currency project led by the Libra Association. Moreover, members of the Libra Association join the association on an equal basis. Looking back now, it is very likely that potential partners on the one hand express that they cannot participate in such a stable currency project led by Facebook, but at the same time must have shown great interest in participating in such a stable currency project. Such interest must have further motivated Facebook to move forward with the project. So when Libra was actually launched, it became a project that multiple institutions jointly promoted. Initial plans to participate already include some major industry leaders, including Visa and Mastercard in credit cards, PayPal and Stripe in third-party payments, and Uber and Lyft in ride-hailing apps. The joint launch of Libra by these companies immediately attracted worldwide attention. In the field of commercial operations, such a strategy is very conducive to the rapid introduction of Libra stablecoins to the market. But at the same time, such a strategy has also attracted great attention from all parties, especially those who will be directly affected by the Libra stablecoin. Among these parties, the most direct impact is the financial supervision and central banks of various countries. So since Libra was launched in June 2019, the biggest resistance it has encountered has come from regulation, not the market.
In this regard, Libra is in stark contrast to the previously existing compliant stablecoins, such as USDC, PAX, and GUSD. Since the product design, business model, market scope, scale and market influence of these stablecoins are relatively small, their launch has not been hindered by regulation. If you compare the business model of these digital stablecoins with Libra's business model, it is clear that Libra has set ambitious goals from the beginning and can attract some important institutions to participate, which actually hinders the launch of its stablecoins .
In terms of product design of stablecoins, the initial design of Libra stablecoins clearly placed it on the opposite side of the world's major central banks. Although Libra has changed its stablecoin to be based on the existing legal tender in the new white paper in April this year, which has slowed down the confrontation with various central banks, but the global influence of the members of the Libra Association and their influence on the The joint support of a trading medium and the underlying financial market infrastructure will still bring great uncertainty to the existing fiat currency market. This naturally leads to a restrictive stance on it by central banks.
We can imagine that if Facebook issued this stable currency by itself at the beginning, and issued the stable currency directly based on the US dollar, that is to say, its issuance model is the same as that of other digital dollar stable coins already on the market. The stable currency will not encounter such a big resistance now. Users of the Facebook social network may soon be able to transfer money between each other using a digital stablecoin. This is actually the ultimate purpose of Facebook's stable currency issuance, which is to provide more effective financial services to users of Facebook's social network. However, Libra's goals are too ambitious and too many resources can be mobilized, which in turn limits the development of its stable currency. In June 2019, just after Libra’s white paper was released, I pointed out that the biggest risk of Libra is that its project scope is too large, and it adopts a big bang project management method. rather than incrementally. Such project scope and management mode are very likely to lead to a substantial delay of the project, or even failure. The subsequent development of Libra shows that my judgment is correct.
The essence of Libra is an innovative application of blockchain technology. Libra is certainly not the end of the spectrum for applications in this space. After Libra, there will definitely be more similar stable currency projects. Future stable currency projects should learn from Libra's experience in order to be able to launch smoothly.
In a previous article, I mentioned some areas that may generate new retail digital stablecoins (see my article "Cross-border retail payments after Libra"). I think stablecoin projects in the future retail sector should have the following characteristics.
First, based on a single legal currency. From the perspective of feasibility, only digital stablecoins based on a single legal currency can be introduced to the market. The newly created digital stable currency based on a basket of fiat currencies is not feasible in terms of supervision and actual implementation.
Second, start with a segment. This subdivision must be in cross-border payments and transactions, such as e-commerce, games and social networks.
Third, it must match an organizational form similar to the Libra Association, that is, the participating members are composed of institutions from different countries, so that a cross-border network can truly be established. After all, not every company has its own operations in various countries like the big technology companies. And judging from the trend of blockchain technology application, it is also necessary for multiple parties to cooperate on an equal basis.
