June 6th, 2019

Following Up on Facebook Globalcoin

Angela Dalton
Managing Partner, Technology Signum Global Advisors
angela@signumglobal.com

Signum Update
Following up on the Big Tech Regulation / Google Antitrust note sent out on June 3rd, I thought it
was worth discussing The Information report yesterday that Facebook will seek to raise funds for
its cryptocurrency, GlobalCoin, by licensing the rights to 100 validator spots for $10 million
each. GlobalCoin is considered a “stablecoin” because the pool of funds, totaling $1 billion, will
make up collateral, comprised of a diversified basket of national currencies and money market
vehicles, likely representing the countries who participate. With $40 billion in cash on their
balance sheet, Facebook is not in need of cash; as we discussed in prior papers, we believe this
allows the company to build bridges across all players in the financial services and payments
system, which decentralizes network ownership and makes a lot of progress in building
regulatory goodwill.

We believe this is a big step forward for Advertising and (initially at least) that this is less about
Payments and more about Advertising. Presumably, the 100 or so payments-oriented companies
who will join them believe this also! One can imagine a world in which GlobalCoin could provide
many ways for users to garner value on the platform and then “spend” it in various ways. Imagine
clicking on an ad to earn value that could be used later to pay for a subscription to The NY
Times or to “tip” a gamer in an eSports environment. Directly paying users for their data with
GlobalCoin and getting more specific spending behavior patterns will be very valuable. This
could allow Facebook to retain rights for cross-service data analytics, while acting as a non-
arbitrary mechanism by which to onboard users to the new currency.

The implications of a successful raise are significant for the current cryptocurrency ecosystem.
We have heard pushback from the crypto community that GlobalCoin will sacrifice the
censorship-resistance offered by Bitcoin and Ethereum and that the $10 million price tag for
running a node is too high. We believe that its integration into the world’s largest social network
provides a far more compelling narrative than most other cryptocurrencies can offer.

There are still several implications and outstanding questions as Facebook attempts to privatize
money at scale.

A Step Forward in Privacy Protection: Users currently receive free access to their Facebook
profiles with the implicit understanding that their media and activity will be sold to third-parties
in some form. The domino effect of data brokers and the reselling such data (see the topic of
RTB below) led to Cambridge Analytica and the current crisis that Facebook and others in Big
Tech now face. An opportunity emerges here when one considers that both users and regulators
would find less issue with the ability to engage in a marketplace for one’s data, leveraging
blockchain technology. By explicitly paying users in GlobalCoin for their data, could Facebook
address regulatory concerns. Also, could Facebook be the first user, dogfooding their new
payments network?

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Capital Controls: Eight out of the top countries by Facebook users have volatile or developing
financial markets. While this provides a huge opportunity for GlobalCoin, in that there is a clear
product/market fit with users in need of stable money, it also presents a roadblock for foreign
regulatory support. With numerous levels of the Indian government having expressed distaste
for cryptocurrencies and Turkey mandating specific thresholds for Lira allocations, it becomes
difficult to see how Facebook brings this product to its biggest user groups, outside of the
distasteful option of surveillance.

Know Your Customer/Anti-Money Laundering: Real Facebook users are not required to
provide identification outside of an email address and phone number. How Facebook will go
about approving accounts for GlobalCoin wallets remains to be seen - imagine on-boarding
your most committed user demographics, Gen X and Baby Boomers, and the confusion they might
feel when asked to provide a driver’s license or bank account number. We are also asking if
they will draw on a common cryptocurrency exchange model, in which accounts are tiered based
in part on the amount of the KYC/AML information provided.

This update been written in collaboration with Maximilian Fiege, a digital asset analyst whose
previous work has been featured by the Council on Foreign Relations and The Block.

For client inquiries, please contact:

Jason Press
Global Head of Sales and Client Services, Signum Global Advisors
jason.press@signumllp.com
+1.917.353.5566

Signum Global Advisors

1185 Sixth Ave, 3rd Floor
New York, NY 10036

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ADVISORS and is not intended to be relied upon
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adopt any investment strategy. The opinions
expressed are as of April 25, 2019, and may
change as subsequent conditions vary. The
information and opinions contained in this
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no responsibility arising in any other way for
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any person by reason of negligence) is
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June 6th, 2019
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