Long Take: The creative remains of Facebook Libra -- US CBDC, Silvergate's stables, Mysten, Aptos, 0L Network, and Meta's wallet
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: Facebook’s Libra had big goals, but flamed out after pressure from regulators and the dissolution of its consortium. What is the impact of that experiment today? What remains? We look at several outcomes, including the CBDC efforts in the US, and Silvergate’s acquisition of the technology and its stablecoin goals to compete with Circle. We also review the three major blockchain efforts in the Move ecosystem, Move being the proprietary programming language for the Diem chain. Last, we points to Meta’s continued interest in Web3 worlds and crypto wallets. Perhaps not a failure after all.
Topics: blockchain, stablecoin, Web3, metaverse
Tags: Federal Reserve, Congress, Silvergate, Circle, Aptos Labs, Mysten Labs, 0L Network, Facebook / Meta
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Long Take
Preamble
It is both easy and fun to throw shade at the big dogs, especially when we are talking about Facebook.
Facebook’s attempt at a pan-national cryptocurrency run on its Libra network was a real shot at some Ant Financial greatness. Announced in 2019, Libra was going to be tokenized a basket of currencies plugged into a global WhatsApp payments footprint, capitalized by every card network and Silicon Valley fintech out there, generating massive net interest on deposits for its consortium. And then it wasn’t — the US government used Facebook’s arguably arrogant financial plans as a way to crucify the company.
Fun fact — the same thing happened to Ant in China. But we digress.
Then Libra lost its consortium, was cut down to a USD stablecoin passed around between regulated entities, rebranded as Diem, and was eventually sold to Silvergate for $182MM of which $50MM was cash. We gather this is below cost of development for Facebook, which proceeded to rebrand the entire company to Meta and focus its targets on the Metaverse.
If you want to revisit some of our archives on the topic, here are the highlights:
March 2020: Why Facebook's Libra needs to change course
July 2021: Getting ahead in Facebook's Metaverse by earning the Harvard of NFTs
November 2021: Why Facebook is domain squatting on the Metaverse
But you know, maybe failure isn’t failure? Well, for Facebook it’s definitely not a win. But perhaps for the rest of us, it is a moment of creative destruction, splintering into a whole bunch of interesting, useful, and challenging projects.
What, end of the day, is the legacy from Libra?
United States Central Bank Digital Currency
You would think that the best evidence for a potential thing is actually the presence of that real thing.
And in 2022, perhaps the $150B of stablecoins and the $40B Terra implosion are good evidence that digital cash equivalents matter. But in 2019 and 2020, these numbers were smaller and didn’t yet matter at the government level. Facebook’s size and potential user reach — much larger than the population of the United States — certainly did. In this way, Libra was a catalyst for many countries to start taking seriously the idea that governments can and should intermediate fiat tokens.
We now also have the Chinese e-CNY starting to be rolled out at scale through various banking and fintech apps. It’s hard to know if Libra had created real pressure or not, but we think it added heat to the boiling pot.
How far is the United States along its CBDC journey? Jerome Powell is at least saying this to Congress and the Fed is releasing discussion papers on the topic.
“I think it’s something we really need to explore as a country … It's a very important potential financial innovation that will affect all Americans … Our plan is to work on both the policy side and the technological side in coming years and come to Congress with a recommendation at some point.”
The game of politics is also starting to wrap itself around CBDCs, and US Congressman Jim Hines (CT, D) has recently put out one such proposal as an output of a hearing called “The Promises and Perils of a Central Bank Digital Currency”. Eventually, real legislation must occur for the executive branch to implement a project of this nature.
We think the bogeyman of Libra still echoes in the chambers of power.
Silvergate’s Circle Shot
As we mentioned, Silvergate acquired the Diem tech stack in a bid to launch its own stablecoin. See more on the logic here:
Silvergate already banks a meaningful portion of the crypto companies out there, a niche that has led them to impressive financial growth. The current deposit base sits around $14B, generating $70MM in net interest and margin revenue last quarter. Another $8MM or so quarterly revenue comes from an internal capital network between the bank’s 1,600 institutional clients. The company is public and trades at around $3B, or a bit over 10x revenues.
The obvious comparison here is to Circle, and the $45B of USDC out there. For context, here’s our prior breakdown of Circle and its SPAC, at the time valued at $4.5B on $65MM of revenue, and since re-priced to $9B. Some updated economics are below:
On $40B of assets, or maybe $30B in average assets, Circle generated $30MM or so of interest income. On $100B, it would then generate $100MM of interest income. Now let’s say you raise interest rates 3x — then you get $300MM of interest income. This banking stuff gets better in a richer interest rate macro environment, which is exactly where we have been heading.
The Move Ecosystem — Aptos, Mysten, 0L Network
Another byproduct of having a large team of Facebook developers trying to create a corporate blockchain for payments is that you get the code for a performant blockchain. But, in fact, not only did Libra give us the blockchain on which transactions are run and smart contracts are executed, but also the Move programming language. See more here.