Facebook’s recent announcement that it is working on a cryptocurrency for WhatsApp users came as a bit of surprise. After all, this is the same company which made a ton of cash from the sale of ICO ads in 2017, then turned around and banned them in mid 2018.
However the timing of the press release, just before the holidays, when it will receive the minimum amount of attention, means that they definitely have something big up their sleeves.
In February 2012 Facebook paid an all in $21.8 Billion for WhatsApp, equivalent to $55 per user. For a company which was losing over $200 million a year it appeared to be a crazy valuation. Or was it? WhatsApp has an incredible amount of traction and continues to grow at a phenomenal rate. It's estimated to have 1.5 billion users, over 450 million of whom are active daily.
That’s a lot of people using WhatsApp.
Unlike WeChat, there is no advertising, games or payment functionality.
With DéMars we’ve spent a lot time designing and building a structured network and “lite” cryptocurrency, which can run on mobile phones (in data constrained environments) and serve as a remittance tool in emerging economies, such as Sub-Saharan Africa and the Indian Sub-Continent.
Exactly the same use case Facebook are proposing for the WhatsApp cryptocurrency.
So we like to think we know a thing or two about what they are trying to do.
We had a good look at how WhatsApp and other chat tools use XMPP technologies, but chose to build our own relay, to mitigate third party risk. Whether WhatsApp’s currency will use the same XMPP relay is still to be seen, as they haven’t made it known what technology they plan to use — a structured or unstructured network, their own protocol or an altcoin? Or if it will even be decentralised or distributed? The “Crypto” may just be the fact that there is end to end encryption — which already exists for calls and texts.
However it’s highly unlikely that the currency will be a mined currency like Bitcoin. My bet is that it will be a cryptographic signalling tool, similar to XRP or Stellar Lumens (XLM), which will mean it will be centrally minted and issued.
This throws up all sorts of regulatory issues. Especially as the Indian remittance market is mentioned as a target. The Indian government have been very hard on crypto exchanges, so I’m intrigued to observe how Facebook intend to manage the on-ramps and off-ramps (i.e exchanges). This is the hardest part, especially if you want to foster financial inclusion.
Will they issue the coins from a “friendly” jurisdiction and allow an unregulated peer-to-peer market to flourish?
I seriously doubt it. Why risk being banned in India, which will mean losing a third of their global WhatsApp users. Not to mention the US regulatory concerns.
So it’s safe to say they’ll obtain the relevant licences and will issue the “coins” through regulated entities, wherever and whenever these become available.
The proposed issue of a USD backed stablecoin is no surprise either. We came to the same conclusion with DMC. For remittances, where the utility is very much stable signalling, backing the cryptocurrency to the most liquid fiat currency in the world (and your firm’s reporting currency) makes a lot of sense.
How trusted stability will be achieved is where it gets interesting. Will the “coin” be fiat-collateralised, crypto-collateralised or non-collateralised? I wouldn’t be surprised if it’s the latter. After all Facebook and WhatsApp already have billions of “trusting” users.
Tokenomics & Monetisation
For an un-collateralised stable coin, every dollar of the crypto held in an individual’s wallet, where they have access to their private keys, is a direct wealth transfer from the holders onto the balance sheet of the issuer.
Let’s assume Facebook issue one trillion USD stable coins at $1 a coin.
One billion WhatsApp users like the idea and decide to HODL $1,000 of the “coin” for future purchases or remittances. All coins sold ;-)
That’s a cool ONE TRILLION DOLLARS on Facebook’s balance sheet. A pretty decent return on their initial investment.
Where governments aren’t trusted and domestic currencies are very volatile and inflationary — the exact markets and places with high WhatsApp penetration rates — it’s certainly probable that users will hold a lot of the WhatsApp Crypto.
When you have trust, you can print money.