Facebook holds talks with traders to create new currency

Secretive unit of the social media company working for over a year to develop currency

Facebook CEO Mark Zuckerberg leaving the Merrion Hotel in Dublin last month. Photograph: Niall Carson / PA Wire

Facebook CEO Mark Zuckerberg leaving the Merrion Hotel in Dublin last month. Photograph: Niall Carson / PA Wire

 

Facebook’s vaulting ambition to create a new global digital currency has led it to hold talks with some of the US’s largest trading houses and cryptocurrency exchanges, including one founded by Mark Zuckerberg’s sworn enemies – the Winklevoss twins.

A secretive unit of the social media company has been working for more than a year to create a currency that its 2 billion users can use to send money to each other, and to buy things not just on Facebook, Instagram and WhatsApp but across the internet and in the real world.

“Payments is one of the areas where we have an opportunity to make it a lot easier. I believe it should be as easy to send money to someone as it is to send a photo,” said Mr Zuckerberg, Facebook’s founder, at the company’s developer conference at the end of April.

But the project will be “bigger and more open” than just a way to make payments and purchases within Facebook, according to people familiar with the project.

To make sure that its new currency, a digital coin linked to the value of the dollar, is liquid and tradeable, Facebook has talked to Jump and DRW, Chicago’s biggest high-frequency trading firms about making a market, according to people familiar with the talks.

Both firms declined to comment. Facebook has required all parties taking part in talks to sign non-disclosure agreements.

Facebook has also held talks with at least two cryptocurrency exchanges, Coinbase and Gemini, through which users could store their coins safely or could convert the Facebook coin into other cryptocurrencies or fiat currencies such as the dollar. Both exchanges declined to comment.

While Coinbase is one of the most popular exchanges, Gemini, which was founded by Cameron and Tyler Winklevoss in 2014, is notable for its links to regulators.

Regulatory approval

It has approval to operate as a trust company under New York banking law and was one of the first two companies last year to win state regulatory approval to launch a digital currency pegged to the US dollar, the Gemini dollar.

The Winklevoss twins are unlikely partners for Facebook. After going to Harvard with Mr Zuckerberg they sued him for stealing their idea for a social network. They eventually won a $65 million (€58m) settlement in cash and Facebook shares.

But experts said that regulation will be Facebook’s biggest challenge in establishing its own currency.

“There is a huge opening for social media companies to move in and take a big part of the banking business,” said David Yermack, professor of finance and business transformation at the New York University Stern School of Business.

“They have an advantage due to their customer bases and the frequency with which people use them, [but] the main challenge is regulation.”

Facebook’s cryptocurrency team, headed by David Marcus, the former head of PayPal, held meetings with other senior Facebook executives this week to discuss an imminent announcement, according to one person familiar with the situation.

In mid-April, Facebook registered a fintech company in Switzerland under the name of Libra. Libra will develop software and infrastructure related to blockchain technology, payments, identity management and data analysis, the register said.

Facebook declined to comment. - Copyright The Financial Times Limited 2019