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How Facebook could earn money with its highly anticipated cryptocurrency

Facebook (FB) is switching to crypto, and experts believe that it could be fruitful – and lucrative – if it played well.

The social media giant is to publish a white paper outlining its plans for a "GlobalCoin", as it is mentioned internally, according to media reports. The announcement is expected Tuesday, but it has already sparked much speculation about what the coin represents for Facebook, its partners and its user base of about $ 2.5 billion worldwide.

Facebook shares rose 4.24% Monday and also rose on Friday as a result of reports that it has recruited a number of large companies as partners to help regulate the crypto envisioned.

In a note released Friday, Mark Mahaney of RBC Capital Markets identified several areas in which Facebook's next encryption token – expected to be launched in 2020 – would be ideal. These areas are peer-to-peer payments, commerce, apps and games. The token provides fast transactions to users, regardless of the status of the fiduciary currency where they are located.

It will not happen overnight, though.

"We believe this strategy is a multi-step process, starting with a focus on user engagement through messaging and leading to additional monetization at each new step – a similar strategy that worked well for Facebook's central advertising industry, "wrote Mahaney. .

Earlier this year, Mark Zuckerberg, CEO of Facebook, also said the company had the intention to become a more privacy-focused social network. GlobalCoin could serve as a pivot for its future monetization potential, focusing on trade and payments rather than advertising. At the moment, advertising accounts for the vast majority of Facebook's revenue.

A first glimpse of how Facebook could monetize GlobalCoin is the $ 10 million buyback to a team of partners managing a "node" in the GlobalCoin system. According to the Wall Street Journal, Facebook has assembled a consortium of partners called the Libra Association to help govern the currency, which includes players such as Visa (V), Mastercard (MA) and PayPal (PYPL). According to The Block, the consortium includes not only financial service providers, but also dozens of other partners, such as eBay (EBAY), Uber (UBER), Lyft (LYFT), Spotify (SPOT) and a handful of venture capitalists, at least some pay to operate a node.

It's unclear exactly how much Facebook reports buy-ins, but according to Dave Balter, CEO of Flipside Crypto, it's possible that these partners would have access to proprietary data or metrics and / or the ability to earn money. money over time.

"A theory would be [that partners] have the ability to earn capital, "he said, including charging interest or other fees.

Ben Tsai, chairman of the investment-driven and encryption-focused asset management company, Wave Financial, said he could imagine a number of monetization pathways for Facebook's GlobalCoin account. over time.

"They could, for lack of a better word," tax "everyone in the ecosystem," he said. "For example, Apple charges 30% on the App Store – a point of contention in the ecosystem, but [developers] always do it. "

If one adopts the long-term role that Facebook's GlobalCoin could play, if one broadly adopts this user base over time, it is conceivable that Facebook will begin to behave in the same way as a Facebook traditional financial services company.

This could involve facilitating cross-border payments and charging fees, or even offering their own financial services for which they could set their own interest rates, speculated Tsai.

It is important to note that Facebook would offer its own financial services would constitute a significant regulatory hurdle. But while it's hard to imagine Facebook playing an important role in the banking system of developed countries, US users may not necessarily be targeted by Facebook's encryption plans.

Mahaney, of RBC, noted that, particularly in the area of ​​retail payments, emerging markets could present a "huge opportunity", marked by the instability of the government and high inflation. Tsai has taken up this idea.

According to Tsai, a cryptocurrency on Facebook could easily surpass "the utility of some of the weakest [global] currencies that have a very high inflation right now. "

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