Former Fidelity Portfolio Manager on Facebook’s Upcoming Cryptocurrency

Recently, former Fidelity Investments portfolio manager Gavin Baker gave his thoughts on Facebook's upcoming cryptocurrency (a stablecoin), which Facebook is reportedly planning to launch later this year.

On March 5th, Baker started a tweetstorm that explained why Facebook's "secret" new cryptocurrency (which sometimes gets referred to as "Facebook Coin" since there is yet no official name, and which is also how we will be referring to it in the remainder of this article) could pose a major threat to both Visa and Mastercard since Facebook could run this project as a loss-leader (e.g. if they offered anyone owning it a 2–5% discount on all purchases made on the Facebook platform) and still hugely benefit from its adoption:

 Next, he pointed out that if adoption of Facebook Coin took off, this would help Facebook with its goal of becoming more like China's WeChat, i.e. enable Facebook to become so "sticky" that it would be very hard for Facebook users to leave and go somewhere else:

To @eugenewei point on utility being the ultimate moat for social networks, a widely used stablecoin would be powerful for $FB in terms of making it closer to WeChat level difficult to deactivate $FB. I believe that is what $FB is fundamentally after - Wechat envy is real!

 Then, he described why Facebook Coin did not need to have "standalone monetization" and why this made it a "threat" to Visa and Mastercard:

i.e. A $FB stablecoin would protect and grow $FB’s advertising business – and thereby need no standalone monetization – in the same way that Android and Chrome protect and grow search for $GOOGL. More engagement for $FB explicitly equals more monetization.

“Come for the tool, stay for the network, never leave because of the utility” to once more paraphrase @cdixon. This makes the $FB stablecoin even more of a potential threat to $V and $MA. It is tough if/when your business becomes a loss leader for a company with 1.5b DAUs.

Next, Baker explained that the involvement of some of Facebook's best executives on this project shows how serious Facebook is about its new cryptocurrency, and that despite what many people think, the real focus of Facebook Coin is not remittances (even though this might be the first use case that gets supported, but paying for purchases of goods/services in Whatsapp, Instagram, Messenger, and any other Facebook properties:

$FB is dead serious about this. David Marcus was the President of $PYPL. Kevin Weil is a fantastic product executive. Some of $FB’s best executives are leading this effort. Every article so far talks about remittances. $FB may start there, but that isn’t the end state.

There is no way they would have this much firepower on a $25b TAM (5% take rate on the $500b remittances market). That is a drop in the bucket relative to the $1 trillion plus (more on this later) ad market and all of their other opportunities (VR/AR, etc.).

Perhaps they start with remittances, then move on to their existing Facebook marketplace and upcoming Instagram marketplace in-line with Zuckerberg’s fairly explicit commentary from the Q1 conference call and CFO Wehner’s commentary at Morgan Stanley in February.

I haven’t seen $FB mention remittances recently (curious for the fact check). They are clearly making off the record comments to reporters about remittances, but I think this may be misdirection aimed at lulling competitors into a false sense of complacency.

If/when the stablecoin was being used broadly – either for remittances and/or on their marketplaces – $FB would begin to roll it out more broadly. Merchant acceptance wouldn’t be a problem with 7m advertisers on their platform. Just make it 1-click.

Of course, just launching Facebook Coin and making it available for purchases on Facebook does not automatically guarantee wide adoption by Facebook users; and so, it is highly likely that Facebook would need to promote Facebook Coin by offering some kind of incentive:

Consumer acceptance is another matter. The existing payments system works well and a smart friend told me last night that he conceptualized it as businesses paying 2% to consumers – through loyalty programs that are valued highly – to shop with a credit card instead of cash.

So $FB will have the same problems faced by everyone else – how to get their stablecoin to the front of the consumer wallet. A 2% discount might not be enough – especially given the consumer love for loyalty programs. Applepay is superb, but I always forget to use it.

A 1-2% discount that makes their stablecoin front and center in every checkout flow? Or perhaps – the loyalty program to end all loyalty programs via the $FB stablecoin. Who knows? I certainly don’t. But this is why Kevin Weil is on the Stablecoin team.

And it is easy to believe Baker when he argues that if Facebook Coin is successful, it will encourage Amazon, Apple, and Google to also create and launch their own cryptocurrencies:

If $FB succeeds, $AMZN, $AAPL and $GOOGL will quickly follow with their own stablecoins. After ApplePay ran on the existing rails and $PYPL agreed to a détente, everyone assumed secular risk was much lower for $V and $MA. This perception could change quickly - iceberg risk.

Baker concludes by saying:

... I think $FB is focused on a stablecoin/payments as a way to create more utility for its products, which is the ultimate moat for any social network.

All of this will only ramp up regulatory risks for $FB, but they – like every other large company – are really good at co-opting regulation to their own benefit. See GDPR.

 

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Ampleforth Seeks to Become the Perfect Digital Asset for Portfolio Managers

A new token is seeking to change up the existing paradigm in the cryptoasset market.

Billing itself as “smart commodity money” - a token that has the benefits of commodity-monies like gold and silver, but can respond efficiently to changes in demand - Ampleforth is keen to emphasize that its token represents a new kind of asset in the space.

The Evolution of Money 

Money has been reinvented many times over: for many centuries mankind did without it, instead simply assigning value to particular goods in exchange for other goods. Then gold and silver formed the basis of money, whether coins were made directly out of these precious materials or "stamped" as a standard into baser metals.

Indeed, gold as a standard for global money transfer lasted for many centuries: the official gold standard was dropped by Britain and the US in the early 1930s and by 1971 the system was abandoned completely to be replaced fully by what we now call the fiat money system where global currencies (to a large degree) freely float against each other on foreign exchange markets.

The Crypto-Evangelists

Niall Ferguson is an expert in this field and, as an Oxford and Harvard lecturer, has written and spoken about money and capital many times. He may be a little late to the crypto party but is none-the-less evangelical about it: in a Bank of England seminar last year he called cryptocurrencies "the financial system of the future".

Ferguson has now thrown his weight behind the Ampleforth Project, which - on June 13 - raised $4.9 million in 11 seconds in its initial exchange offering (IEO) of its "Ample" (AMPL) tokens.

The digital asset explains in its white paper that it’s a "synthetic commodity" that aims to become truly uncorrelated from both traditional assets, stocks and currencies as well as from Bitcoin, other cryptoassets and other synthetic commodities. The problem with existing synthetic commodities, the paper explains, is that they have so far failed to do both. 

Ampleforth Explained

While Ampleforth seeks the price target of $1 for the Ample, instead of pegging directly to the dollar - like Tether - or to a basket of fiat currencies - as Facebook's Libra intends - the Ample will allow the quantity of assets a user holds to fluctuate, in addition to price, as it seeks a price supply equilibrium.

The system's protocol will actively seek this equilibrium by either proportionally increasing the quantity of tokens every user holds when prices climb, or proportionally decreasing the quantity of tokens every user holds when prices fall.

This is called money supply and has been one of the tools used by central banks to control inflation for many years. But Ferguson's criticism of this - in his book The Ascent of Money - is that it reflects human sentiment too much:

Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.

Ampleforth seeks to overcome these problems algorithmically by applying countercyclical pressures that dampen volatility, encouraging markets to self-correct. Supply updates will be freely visible in the market ahead of any changes, allowing the market to anticipate these changes and respond accordingly.

Ferguson explains his enthusiasm for the project:

The ingenious thing about Amples is that this they are not stablecoins, pegged in some way to existing fiat money. They are a special kind of digital asset, the quantity of which varies in response to the behavior of investors and traders.

Crypto Rivals

Ampleforth is unlikely to challenge Bitcoin any time soon as the number one crypto investment, but offers a compelling three-stage plan for the use of Amples. 

In the near-term, the token’s lack of correlation to both traditional assets and Bitcoin, will make it a useful portfolio diversifier. 

In the more medium-term, Amples may be used as reserve collateral in decentralized banks, such as Maker DAO.

Ultimately, the long-term goal however, is that Amples will serve as an independent alternative to central bank money. The team describes it as a “macroeconomically friendly” Bitcoin that averts the deflationary problems associated with fixed supply commodities when used as reserve collateral by banks.

Ampleforth Moves Forward

Such was the success of its first token sale on Bitfinex, that Ampleforth is conducting a second round of funding on the same exchange on Thursday.

The company aims to raise close to $7 million in this IEO, with a maximum contribution per investor of $7,060 and a minimum of $28, with each Ample token worth $0.98.