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Facebook prepares to shake up the finance world

Tuesday is June 18th — and so, according to TechCrunch, it's the day that Facebook is going to maybe
June 17 · Issue #342 · View online
The Interface
Tuesday is June 18th — and so, according to TechCrunch, it’s the day that Facebook is going to maybe upend the global finance system. According to Josh Constine, Facebook will release a white paper describing its forthcoming cryptocurrency, to be called Libra, and tell us all how it works.
Based on what has reported so far, the project seems staggeringly ambitious. So what should you read to prepare?
First, read this report from Alex Heath and Jon Victor in The Information about the unusual design of the project. (A subscription is required, and you should buy one! Or make your employer.) According to the reporters, Libra will be managed not by Facebook but by an independent foundation:
Facebook plans to cede control of its forthcoming cryptocurrency to outside backers, a move meant to encourage trust in the digital payment system and reassure financial regulators, The Information has learned.
In recent months, the social network has courted dozens of financial institutions and other tech companies to join an independent foundation that will contribute capital and help govern the digital currency, according to people briefed on the plan. The digital token, which Facebook is expected to unveil later this month, is designed to function as a borderless currency without transaction fees and will be aggressively marketed in developing nations where government-backed currencies are more volatile, the people said.
Key point to reiterate there: Facebook reportedly does not plan to control the currency.
This report makes Libra sound less like the preferred way to pay your friends back on Messenger and more like an end-run around the global banking system, an end run supported by many other institutions. Which brings us to our second piece of homework: Facebook’s entire list of inaugural backers, published by Frank Chaparro and Aislinn Keely in the Block:
The Block has gotten its hands on consortium marketing materials and can now report dozens of firms not previously known to be involved, including investors such as Andreessen Horowitz and Union Square Ventures, cryptocurrency exchange Coinbase, and non-profits including Mercy Corps. Calibra, a subsidiary Facebook formed to oversee the social media giant’s crypto efforts, is also among the founding members, according to a source familiar with the matter. […]
A person familiar with the situation said Facebook charged some members $10 million to manage their own node, which allows members to access and view the network. Originally the company had ambitions to get Wall Street involved, but found a lack of interest among institutional giants like Goldman Sachs and JPMorgan. It is still looking to have 100 members in the governing association, the person said. 
This list of participants raises more questions for me. What value do Andreessen Horowitz and Union Square Ventures see in participating? (Guess: Libra may be a programmable currency, like Ethereum, and create a new platform for startups in which it could eventually invest.) What value do nonprofits see in owning a node? (Honestly no idea.)
Third, let’s read the Wall Street Journal’s reporting on the news. AnnaMaria Andriotis, Peter Rudegeair, and Liz Hoffman help us understand why MasterCard and other payments companies are getting involved:
Keeping the cryptocurrency network separate from Facebook’s platform gives the social-media company some cover with users and regulators should problems arise, a big advantage at a time when it is under pressure to address privacy shortcomings. Yet Facebook, as the developer of the underlying technology, could exert considerable influence over it.
Still, the lure of Facebook’s nearly 2.4 billion monthly active users was too strong for many companies to pass up. Card companies have long fretted that a technology giant could muscle into their business, creating a payment option that cuts out card networks. Participating in Libra allows them to closely monitor Facebook’s payment ambitions while sharing in the upside should the project gain traction with consumers.
So, payment processors are sufficiently interested in / worried about Libra that they’ve decided to spend $10 million to keep close tabs on it.
Finally — how are analysts feeling about Libra?
Analysts are very excited, Michael Bloom reports in this round-up for CNBC. Let’s give the block quote to the absolute most excited analyst in this piece. Take it away, Mark Mahaney of RBC Capital!
“We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams, and we plan to provide an analysis of the White Paper to help investors analyze the underlying cryptoeconomics of the token. We believe Facebook will use crypto to facilitate a platform for: 1) Payments; 2) Commerce; and 3) Applications & Gaming. And we believe this strategy is a multi-step process, starting with a focus on user engagement through messaging and leading to further monetization with each subsequent, deeper step – a similar strategy that has worked well for Facebook’s Core Advertising business.”
There is much to consider in this analysis, and yet I find myself struck primarily by the fact that RBC has so much respect for Facebook’s core advertising business that they capitalize it.
So is Libra, indeed, “one of the most important initiatives in the history of the company”? Or is it more like that time that Facebook gave everyone email addresses, and then no one used them, and they were quietly forgotten?
We won’t know the answer tomorrow. But we will know a lot more.

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