Translation: Facebook Coin Founder David Marcus: Novi Provides Free Cross-Border Payments, Reflections on the Metaverse

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Translation: Facebook Coin Founder David Marcus: Novi Provides Free Cross-Border Payments, Reflections on the Metaverse

Facebook's cryptocurrency Diem, formerly known as Libra, has been unable to launch its stablecoin under strict scrutiny from multiple regulators worldwide. However, David Marcus, the head of Facebook Financial (F2) and co-creator of Diem, published an article on the evening of the 18th regarding the wallet Novi developed by Facebook for Diem and the future of Facebook payments.

The article, titled "Good stablecoins, a protocol for money, and digital wallets: the formula to fix our broken payment system," covers the following topics and full translation:

Disclaimer: I am a board member of the Diem Association, and Novi is a member of 25 other organizations. The focus of this article is on the potential of Novi and Facebook in the industry.

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Why Currency Flows Must Change

There have been many discussions and debates in the United States recently about stablecoins, cryptocurrencies, and other digital assets. I'm excited to see the lively discussions, especially now. Our fragmented payment infrastructure is in urgent need of transformation like never before.

All our systems are expensive, slow, and not interconnected. Around the world, about 1.7 billion people still do not have bank accounts, and many more lack access to adequate banking services. Among them, 62 million Americans are unbanked or underbanked: they are abandoned by the current system and trapped in a cash economy. The development of cross-border payments is in a dire state globally, with the average cost affordable to consumers being 6.5% (more than double the Sustainable Development Goal of 3%), and settlements taking an average of three days.

The COVID-19 pandemic has accelerated the expansion of the global digital economy. It has triggered changes in how people buy, where they buy, and how they engage with merchants. It has prompted many households to rely more on remittances as a vital economic lifeline. This trend is expected to continue: the percentage of global digital transactions is projected to rise from 57% before COVID-19 to 67% by 2025. This becomes even more critical for merchants, and policymakers must move swiftly to ensure people do not fall behind.

However, despite these challenges, many obstacles remain before responsible innovation can be made. At this critical moment, the United States should lead the change—but currently, we are lagging behind, letting countries like China take the lead.

During my time leading the Facebook team, I stood up against these obstacles, and the team has been developing the Novi wallet for over two years now: an interoperable digital wallet that will enable individuals, and ultimately small merchants, to transfer funds quickly and affordably domestically and internationally.

During this time, we have had many conversations about our choices and why we care so much about building Novi with stablecoins rather than fiat currencies, or in other words, the government-issued currencies we are all familiar with and use today. I want to take the time to explain why this is important to us.

How Stablecoins Can Help Solve Problems

I want to explain that if we were to offer only fiat currencies in Novi, it would bring a lot of value to people. We could provide domestic and cross-border payments, which would benefit Facebook as we would create a large number of wallet accounts. In turn, these would allow us to establish a robust merchant service business by accepting payments from Novi customers at competitive rates. So why not just do that? Well, we might.

But before we do that, I firmly believe that if there's an opportunity to create an open, interoperable currency protocol on the internet and truly change the game for people and businesses worldwide, it is now. As members of the Diem Association, we are in a position to help bring more companies onboard based on a standard in a different way, and I don't want to miss that opportunity.

While there has been much discussion recently about stablecoins and their role in payments, stablecoins themselves cannot solve any problems. To unlock their potential, they need to be combined with a cheaper, faster, safer, interoperable, and programmable underlying payment network. A system that is more open than the current outdated system, which has abandoned too many people and has proven to resist innovation. In fact, there has been little innovation in the current payment channels since the creation of the first credit card network over 60 years ago.

It is important to understand that not all stablecoins are the same. The definition of a well-designed stablecoin lies in the design and management of its reserves, transparency of reserves to consumers and regulators, and the consumer protection and compliance points provided by the issuer.

A well-designed stablecoin: always holds a 1:1 reserve of U.S. bank cash and ultra-short-term government bonds, with the issuer holding capital as a buffer. This can be said to provide better consumer protection than any fiat currency held in any wallet today. If it weren't for FDIC insurance, the same goes for any bank deposit. The former can hold fewer liquid assets to allow for investment; the latter is composed of partial reserves, allowing banks to hold short-term liabilities exceeding their short-term assets. In fact, even in a bank with the ability to pay, there would be delays in converting long-term assets to cash if all customers of a bank wanted to withdraw all balances in a short period. With a well-designed stablecoin, this risk does not exist.

In terms of anti-money laundering, counter-terrorism financing, sanctions, and tax compliance: a well-designed stablecoin and its wallet ecosystem have the potential to improve the traditional enforcement of these controls. By definition, digital assets are anonymous, which is a misconception. You just need to build and configure stablecoins and wallets correctly to place customer due diligence at the core of their compliance.

When stablecoins are designed to interact and collaborate with individual wallet controls, they can more effectively detect and report potential illicit activities. It will also prove to be more efficient than the current system of post-transaction processing, where illicit activities are monitored long after completion. This approach is more effective in combating financial crime. Contrary to many perspectives, stablecoins under strict control through the internet and wallets bring significant opportunities for innovation in this field.

It's Time to Let the Best Ideas Lead

In the United States, our payment infrastructure can be said to be among the worst among developed countries, and it is falling further behind, while China is steadfastly and urgently building infrastructure to make the digital yuan a challenger to the U.S. dollar as the world's reserve currency. According to the 2019 Federal Reserve Payments Study, in 2018, Automated Clearing House (ACH) payments accounted for 66.1% of the value of non-cash payments in the United States. ACH was conceived in the early 1970s, and payments still take up to three days to complete. However, the cost for merchants in the U.S. to accept consumer payments is ten times that of Europe.

Throughout the entire process of building Novi, we have had conversations with many individuals who have been excluded or underserved by the current system. I was shocked to hear that many people who are actually eligible to have bank accounts had them before. They feel they do not want to pay unpredictable fees and would rather pay a predictable 10% to cash a check, opting to be harmed by unaffordable fees. How is this acceptable? If we want to uplift people and give them a chance to thrive, the system that helps them protect and transfer funds should be accessible to everyone and serve them in a lower-cost, non-discriminatory manner.

That is why we work at Novi every day. We believe we can help many deserving individuals change things for the better. To have the greatest impact, building a closed system with fiat currency alone will not solve it. We need to seize the opportunity to help create an open, low-cost, universally accessible, near-real-time ecosystem and network. This was the vision we set for Libra in the summer of 2019.

After announcing the Libra project, we publicly committed that we would not launch Novi on the current Diem without the necessary regulatory approvals, and we would engage with regulators, policymakers, and experts while developing the product. We have upheld these commitments and have engaged in constructive discussions with regulators and policymakers worldwide. In the U.S., we have obtained Novi licenses or approvals in almost every state, and we will not launch where such licenses have not been obtained. The Diem Association has become an independent entity in dialogue with U.S. and global regulators. It has addressed all compliance issues raised in the design and construction of a high-grade stablecoin, including broad consumer protection, a highly compliant payment network, all meeting U.S. regulatory standards.

Nevertheless, on this journey, I have repeatedly heard various arguments that the payment and financial services industry should not let Facebook be a part of these innovations. I have heard many say, "How much better these proposals would be without Facebook's involvement."

First, Facebook has been a participant in the payment industry for a while now. We launched Facebook Payments in 2009, and in the past four quarters, we have processed over $100 billion in payments. We have vibrant user-to-user payment products in the U.S. and internationally, and we are regulated to do more. People and businesses in over 160 countries/regions use our platform to transact in 55 currencies. People can shop, make in-app purchases, donate, and pay to participate in activities in our apps.

Secondly, I find this thought process very un-American. I came to this country and became a proud citizen because of its value system, the opportunity to create products that can improve many lives, and to create a good life for my family. One of the core principles of our value system is a commitment to a level playing field. Anyone offering reliable solutions to problems should have a fair chance. While Facebook has more work to do in rebuilding trust, it has consistently provided tremendous value to consumers involved in similar critical services. Take communication, for example, WhatsApp and Messenger have helped billions communicate, costing only a tiny fraction of what people spent before these apps appeared. We have played a critical role in empowering people in free and unrestricted communication. International calls that used to cost what only the wealthy could afford, $1 per minute, and texts at 25 cents per minute.

So I believe we should be treated fairly. We can and should improve the unacceptable and ongoing conditions for most people and play a key role. The American way is to invite more competition and innovation that can break the decades of stagnation. Moreover, as the relevance of the dollar and U.S. global influence face unprecedented challenges, we should leverage some of our most successful companies to win this silent war for national interests.

Let me also touch on the issue of scale. I understand and accept the need for additional scrutiny due to our scale. Given Facebook's influence, some believe Novi will be used by billions globally right away. As we know from the experience of launching and expanding other payment experiences, this is not how it develops. Regardless of how long someone has used Facebook, they must make affirmative choices to open a Novi account. As part of creating a new account, Novi requires comprehensive due diligence on customers, including identity verification through government-issued IDs, so new customers need time to apply. Novi cannot operate in specific jurisdictions until it obtains the necessary licenses and complies with local regulations and standards, so we will be launching in a few countries/regions.

I have also heard concerns about our ultimate intentions. The argument is: "It's obvious, you must have a shady money-making plan; you can't possibly be doing this for the greater good." I can't blame people for thinking that way. But this thinking stems from a misunderstanding of the tech industry and the spirit upheld by most highly successful tech companies. We focus primarily on solving significant problems for a wide range of people and only then find ways to make money to sustain operations. In this case, our business model is very clear. We are challengers in the payment industry, and we will offer free domestic and international person-to-person payments for those using the Novi wallet. We believe people will prefer free and convenient services over expensive and consumer-unfriendly ones. Once we have a sufficient customer base, we can offer cheaper merchant payments to businesses worldwide and still profit from merchant services.

The Future of Currency

Finally, I have been reflecting on Mark's vision for the Metaverse recently. Thinking about currency in the Metaverse has actually been very helpful in how we design our products and support the underlying infrastructure. After all, if we were to invent currency and payment systems for a purely digital world today, what would they look like? They certainly wouldn't resemble our current infrastructure. There needs to be a global, open, interoperable, near real-time, low-cost, compliant global currency protocol that enables people, creators, and businesses to seamlessly transfer funds and innovate through programmable currency. Wallets need to support NFTs. True contracts and titles will be replaced by smart contracts. While this may sound out of touch with the reality that the people we aim to serve—those left behind by the current system—are experiencing, it is not.

Change should have happened earlier. It will happen in some way. Novi is ready to launch. It is regulated, and we are confident in our operational capabilities to meet and exceed our high compliance standards. We believe it is unreasonable to delay the benefits of providing cheaper, interoperable, more accessible digital payments. We will continue to uphold and prove that we can be a trusted participant in this industry—and bring about positive change through our involvement.