The Crypto-Facebook Story: Why One of the Richest Companies of the World is Raising Capital

Facebook has long been rumored to be planning and developing its crytpo, but there has been no official confirmation yet. Recent unconfirmed news now suggests that Facebook might be looking for venture capitalists to invest in its crypto project, with a handsome amount of USD $1 billion.

The Recent Update

The New York Time’s tech reporter, Nathaniel Popper has recently tweeted that Facebook is looking for venture capitalists to raise capital for its stablecoin project. This came in from the unidentified sources Popper interacted with.

The capital raised by VC firms would be used as a collateral for Facebook’s stablecoin. In order for stablecoins to maintain their value of a pegged asset, a large sum of money is kept that which adjusts the value of the coin when it fluctuates from the pegged asset’s value. This sum of money is termed as collateral. For Facebook, the capital it will raise by approaching to VC firms will be held in collateral, while its stablecoin will be pegged to a collection of different currencies in one’s bank account.

Popper then questioned Facebook’s move to turn towards VC firms for raising capital when it can easily finance the project by itself.

Nathaniel went on further to why Facebook turning towards VCs can backfire since it can be taken as antagonist to blockchain concept of decentralization.

One could say that perhaps with this new project Facebook is trying to embrace decentralization with open arms.

No Official Confirmation

Due to a lack of an official statement from Facebook, it has been hard to say if the social media giant was serious about the crypto project. There have had been some indications here and there, but no real official announcement has been made. With the new update, which states that the company is targeting to raise a billion dollars, it seems that Facebook wants to go big with its new project. The news for sure is good for the crypto community, but what is the project about anyways?

READ ALSO: Facebook Crypto Coin is a ‘Red Alert’ for Remittance & Banking Industry

In May 2018, David Marcus, the head of Messenger and a former board member at Coinbase announced the formation of a group that would focus on the use cases of blockchain across Facebook. Further on, it was noticed that Facebook hired a group of blockchain developers. In December 2018, Bloomberg reported that Facebook in fact was working on developing its stablecoin.

Why Stablecoins?

Stablecoins are crypto assets/coins that are pegged to a certain asset, for example a particular currency. They maintain their value to their respective pegged asset. For instance a coin pegged to the US dollar would maintain the value of the US dollar. Stablecoins have received popularity in the crypto space as they are safe from the dramatic shifts of the crypto market, and thus have a numerous use cases.

To what currency the stablecoin would be pegged to? Its not clear yet, as the company is yet to finalize the pegging asset, although as per the recent update, the stablecoin will be pegged to a basket of foreign currencies.

Indian Remittances and Facebook

One of the use cases for Facebook’s stablecoin is expected to be handling money transfers on WhatsApp. Facebook’s attempt to digitize payments procedure via the use of a stablecoin particularly centers around the transfer of remittances in India. The remittances in India contribute to about 10% of the GDP, and amount to as much as $69 billion. The idea to exploit this market with a digital payment system seems even better as the internet is getting more accessible and cheaper across the heavily populated India. When Facebook’s stablecoin does come, people across India would be able to receive remittances on their messaging app — WhatsApp.

READ MORE: U.S. Presidential Candidate Cannot Break Bitcoin, But Why She is After Facebook and Amazon

It could be said that the step is Facebook’s move closer to developing an application that allows the common man to make everyday common transactions with the touch of their finger tips, much like WeChat in China.

A report quoted Barclays’ internet analyst Ross Sandler’s staggering estimate on how much Facebook could make with its own crypto: close to $19 billion by 2021. This is in addition to the revenue the company makes via advertisements.

Facebook’s Plans for Cryptos is a Big Deal

It is clear that Facebook has big plans with cryptocurrency though it is not expected to be released anytime soon. Slowly but surely, the crypto space is maturing. Facebook is a huge and an influential company and its adoption of a cryptocurrency will further mature it. In fact, Facebook is not the only social media platform looking to have a cryptocurrency. Russia’s top social media platform VK is also reported to have plans for having a cryptocurrency. Although their use case for crypto is much different than that of Facebook — VK users would accumulate the crypto for the amount they spend on the platform — this clearly shows that crypto has potential.

Experts say that for crypto to become stable and grow further, cryptocurrencies need to have valid use cases. However, it is possible that social media giants exposing masses to crypto could achieve a similar scenario. Facebook has a 2 billion user base. Exposure of crypto to people via Facebook will draw heavy attention to the crypto space. Clearly, regulation in the crypto space will pace up. As crypto adoption will tend to go up thanks to Facebook, the crypto market would be expected to go bullish. This is why Facebook working on its own cryptocurrency is such a big deal.

READ MORE: Can Facebook Connect on Blockchain Save Zuckerberg?


Qirat Ayaz

Passionate about robots and how the robotics is changing everything around us. Writes about startups in the blockchain space. Contact the editor at editor.startups@blockpublisher.com

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.