The social media company is gearing up to announce its much-hyped cryptocurrency this month, but very little is still known about the project, known internally as Project Libra. On Sunday, Long shared some predictions about how the cryptocurrency might work and how it will impact the crypto industry.
“Facebook will pay interest to users of its cryptocurrency, which will eventually lead to populist calls to repeal subsidies at the heart of the US banking system”
Here’s how Mark Zuckerberg’s crypto solution could be forced to pay interest back to its users.
Facebook’s cryptocurrency is a stablecoin, pegged to the value of a basket of global currencies. To keep it stable, GlobalCoin will be backed by millions in fiat currency. That money will be held somewhere – probably the Federal Reserve – generating interest.
“The assets backing the cryptocurrency will generate interest income”
Long says Facebook will come under incredible pressure to pass that interest along to its users.
“If Facebook doesn’t share these interest spoils with users, a chorus of critics will loudly publicize how much money Facebook and its partners are pocketing.”
Speaking to the mechanics of how this would play out, Long predicts that Facebook will park the reserves at the Federal Reserve via its financial partners.
The Federal Reserve pays 2.35 percent according to its interest on excess reserves rate (IOER) . There would be uproar if Zuckerberg didn’t disclaim this and share it with users. Long acknowledges that stablecoins don’t currently pay interest, but none are as large and public as Facebook.
“It’s true that other stablecoin issuers almost always pocket the float rather than sharing it with their customers. But Facebook’s stablecoin will probably be too big and visible to get away with this.”
Caitlin Long went on to make five other major predictions on the future of Facebook’s cryptocurrency. She said GlobalCoin would be groundbreaking in developing nations.
Citing Venezuela, she said Facebook’s cryptocurrency would provide a “store of value more reliable than their government-backed currencies.”
As CCN.com reported, Facebook is aggressively targeting developing countries with the launch of GlobalCoin. Early use cases point to remittance payments in India via WhatsApp.
Long ended on a strong note for bitcoin. She believes Facebook’s presence in cryptocurrency will act as a learning curve for new crypto users. Ultimately, she says, people will migrate to bitcoin.
“Facebook will greatly accelerate the pace of teaching people about cryptocurrencies. And when this happens, more people will turn to bitcoin for one simple reason—bitcoin is scarce, while Facebook’s cryptocurrency is not.”
Long said Bitcoin is the most honest ledger for storing wealth. People will recognize that and shun derivatives of the existing financial system like GlobalCoin.
Zuckerberg and co. remain tight-lipped about GlobalCoin. The company has been aggressively meeting with regulators and made attempts to decentralize the mechanism by which it works. But it remains to be seen whether Facebook users will welcome Zuckerberg’s attempt to co-opt the crypto movement.