Banking News

Will Facebook create a coin based on basket of currencies?

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Yesterday the New York Times (NYT) published an article revealing new details about Facebook’s anticipated cryptocurrency or stable coin. In December Bloomberg report that the company was working on a U.S. Dollar stable coin for remittances to India. The coin will be used via the WhatsApp messaging app initially.

The NYT article contained three new pieces of information about the secretive project. Firstly, Facebook is hoping to launch the coin in the first half of this year. Secondly, the company is talking to cryptocurrency exchanges about selling Facebook coins to consumers. And thirdly, the stable coin may be linked to a basket of currencies rather than individual currencies. We speculate about whether that’s likely.

It’s been ten months since Facebook announced a new blockchain division led by David Marcus who was formerly president at Paypal and more recently on the board of Coinbase, the high profile U.S. cryptocurrency exchange.

Three weeks ago we revealed that the team had expanded to more than 54 people from just seven last July. Plus earlier this month it set up a new London outpost through acqui-hiring the Chainspace team.

A basket of currencies?

The most surprising NYT revelation is that a Facebook coin might be pegged to a basket of currencies. That would seem to appeal to cryptocurrency fans or the financially sophisticated as opposed to the broad audience base that Facebook boasts.

We’re speculating here, but is it possible that instead Facebook is planning a basket of stable coins: A FB Euro coin, a FB Dollar coin, a FB Indian rupee coin?

If there are multiple currencies, then you need to provide exchange rates between them. Facebook could do that themselves by using a smart contract to provide automatic input of market exchange rates or even add a margin.

But that would make Facebook rather like Paypal and others who earn margins on foreign exchange.

In the spirit of blockchain, it would be consistent to outsource the foreign exchange aspect. That requires liquidity and market makers which means cryptocurrency exchanges.

So the question is whether Facebook is talking to exchanges “about selling the Facebook coin to consumers” per the NYT article. Or whether the exchange discussions are about market making and liquidity for converting between U.S. Dollar, Euro and Rupee Facebook coins.

Potential revenue impact

The other big question is: how will Facebook make money? Most likely by adding a small transaction fee within WhatsApp. According to the UN, in the first quarter of 2018, the global average cost to consumers of sending $200 to another country was 7.1 percent. So there’s significant room for improvement.

This could be a massive opportunity for Facebook.

Ledger Insights previously analyzed the potential impact of a coin on Facebook’s average revenue per user (ARPU). North America’s ARPU ($27.61 Q3 2018) is more than ten times that of the Asia-Pacific region which includes India, Facebook’s biggest audience. Looking at it another way, Asia-Pacific makes up 40.4% of Facebook’s audience but just 17.6% of its revenue. That’s why Indian remittances make so much sense.