184 - Why Facebook’s Stablecoin Failed, with David Marcus

or falling behind at a rapid rate that's actually basically compounding to us losing or being a losing path against other nations or regions that that are are making really solid progress welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean Adams I'm here with David Hoffman and we're here

to help you become more bankless on today's episode we have a postmortem of Facebook's highly ambitious project all the way back from 2019 Facebook at that time trying to build a stable coin but the US government stopped it from white paper to being called in front of Congress in three weeks what really happened and what can we learn and apply about crypto there's two Davids on the show today we are guiding this conversation today by David Marcus and of course my co-host David Hoffman but David Marcus is one of the architects of

Facebook's stablecoin project a few things we get into today number one Facebook's Libra project why did it fail and who tanked it the US government the banking Lobby and why can't the West seem to innovate on its banking system number two we talk about super apps and why David doesn't think they work including Musk most recent attempt with Twitter AKA X lastly we talk about why our guest thinks the money layer of the internet will be built on crypto but not just crypto that will be built more specifically on bitcoin yup and this is

where the episode takes a turn into debate territory no we didn't get into the full debate with David on ethereum versus Bitcoin you'll have to tune into the debrief for that David why was this episode significant to you this episode threads a number of different subjects that I think are going to be increasingly relevant for the crypto industry one is payments of course we know payments but also social Messengers why do Messengers and payments go together and then what does the government have to say about that is

the third variable I think understanding the incentives from each variable payments messenger and government regulation I think understanding each one independently inside of its own style level and it will help kind of carve out the path for where this ultimately goes for what will hopefully ultimately become crypto native payment applications messenger applications that don't exist yet but I think if you listen to this episode you'll kind of understand that these things are probably going to come together and also

the government's going to have something to say about it so I think these are the themes to pay attention to and why this episode is significant I know it was killing you David not to have the Bitcoin versus ethereum debate but I really had to like plug myself I saw you I saw you but the spice will flow in the debrief of course which is available of course for bankless Citizens now on the premium RSS fee click the link in the show notes if you want to upgrade you can access that we're going to get right to the episode with David Marcus but first we disclose just one disclosure today I hold Bitcoin David do you have any Bitcoin nope no Bitcoin for David

we are long-term investors we're not journalists we don't do paid content there's a link to all bankless disclosures in the show notes at all times let's get right to the conversation with David Marcus but before we do we want to thank the sponsors that made this episode possible including bankless Nation we are excited to introduce you to David Marcus he's an entrepreneur and Tech executive in the world of payments we're really interested in his lens on where all this stuff is going and I think the discussion today is much broader than just payments so I first ran across

David in 2019 and this was the year he testified in front of Congress on behalf of Facebook in support of this project called diem I'm sure many bankless listeners remember diem uh it was also called Libra for a time this was Facebook's attempt at a stable coin the US government maybe shut it down uh I'm not sure what happened maybe we'll hear more from David today and before all this he started a company that was acquired by PayPal he later became the president at PayPal that means running the company and then he joined Facebook as the VP of their messenger app and

that's when he started the Libra project and right now he is a co-founder of Light spark a company that is building out bitcoin's lightning technology and this intersection of web 2 government crypto that's what we have on the docket to talk about today David welcome to Bangla thank you and good morning good morning uh wow I'm I'm hyped to actually have this conversation with you because uh you you came across my radar back in uh 2019 with the Facebook Libra DM project and I think that's actually a logical

place to start if we're gonna unravel the future of payments and and how the government and crypto and big Tech is involved so let's start there as a case study can we first talk about the Libra project David so uh can you give us some context and then we'll talk about maybe what went wrong or what the roadblocks um you know that that appeared actually were so what is this project for those who weren't familiar with it at the time so Libra I like to call it Libra I feel like DM was not really its real name but it it ended up uh it ended up there but

uh so look what we tried to do then was actually to try to bring to the world an open protocol for payments or money on the internet which is still lacking as we speak today which is kind of an anomaly and a shame uh but basically what we try to do is build really good tech for real-time uh net settlement of money on the internet and um and and one of the artifacts that was actually needed at the time to make it it happen we at least we thought so was actually a stable coin so the whole package was

actually a technology a blockchain that was basically the Libra blockchain uh a smart contracts programming language which uh was moved that's still alive today uh in uh in different forms and on on high performance layer ones out there uh and uh and a stable coin and uh and basically the thesis was if we're doing it from Facebook but then all of our control and our governance over it uh then we can actually really have a positive impact uh in the world uh unfortunately no one actually believed

the power uh you know power dynamics behind it and uh and a brand association with Facebook at the time was just not palatable from a political standpoint so yes you were right in your intro uh the project was killed or shut down by uh by the government that's so interesting so there's some details there to to Really unpack maybe you could start us with this so what was in it for Facebook like why did Facebook even want to go down this uh this this project Endeavor well I think that you know if you think about Facebook and the role the company has

played over over many many uh years uh on all kinds of different contributions that have changed uh the direction of travel of Technology um you know more recently on AI or even in VR uh you can see that there's a pattern there of trying to bring breakthrough Technologies then bring it to the masses and try to really help with the distribution it has to advance all kinds of different problems that that people have had and again like you know right now very successfully so with

with AI contributions to open source and and others it feels like there's also a tie with kind of messaging and I believe you were um you're part of kind of the the Facebook Messenger group as well and we certainly see this pattern playing out in you know China super apps you know Japanese super apps the the wechats of the world the Ali pays of the world is this kind of part of the Inception of the idea here's what China is doing some of the Chinese tech companies and so if we just take messaging and we add the

ability for an individual user to actually not just send um communication messages but to send money then we've got a kind of a killer app combo and this begins to look almost like a like a super app is that part of the thesis here so definitely not the I mean so I think China is a you know in a totally different world because like it actually leapfrogged credit cards to go straight from messaging based payments in WeChat and others uh and I I don't think that's actually applicable to the

West at all because we've have have like you know credit cards and modern uh modern payments experiences despite the fact that they're not built on Modern rails uh for a very long time uh but yes when when I left PayPal so I was leading PayPal I came to Facebook to actually build the messenger product or you know build it into a a standalone product when uh when I joined one of the first things I did was actually try to add payments to it um and you know this is uh this is a a a

a product that enables people to move money inside of messenger in the US right now not globally um and as you know WhatsApp is also part of uh of meta now and so the thought was definitely to try to enable Global Payments inside of those platforms to enable people to actually move sound digital money around the world in a really seamless and cost effective way because we thought it would actually solve real world problems at scale and really unlock a lot of value so there was definitely a distribution play on

the mess messaging apps but not only on the messaging apps of meta that was actually super relevant at the time to us so Facebook has this idea um they want to like you know Facebook wants to create kind of a payments application inside of its messenger app and so the idea behind Libra is kind of born we can use some smart blockchain Tech combine that with you know smart contracts uh we'll probably need a stable coin for this sort of thing then what has to happen so can you can you bring us forward to 2019 so does a

company like Facebook have to like go ask for government permission in order to do this or like how does it work because here in crypto we just like release code you know like we publish it on GitHub and then people you know run it on their nodes and it just kind of like we no one no you know Satoshi didn't go in front of Congress and ask uh for anyone's permission but but tell tell us how this works in inside of a corporate environment so look I mean when when you work um uh when you build a project like this

uh at the at the center of a company that reaches at a time 3.5 billion uh monthly active users uh and is as as at the center of public policy for all kinds of different uh topics um you can't just uh launch something like this and and hope for the best so there were a lot of rumors uh when uh we were building uh Libra and the rumors were actually a lot worse than the reality at the time and so we felt like you know we had everything ready so

we're just going to issue a white paper that that describes what our intentions are what the technology is and where we're going with it and um and you know with that bring more people along for the journey but also engage with Regulators all around the world and talking about the the things that we didn't think through in terms of compliance and you know regulatory requirements um we thought of a lot of them but you know different countries have different requirements and and

different approaches to this so we felt it was going to be an open conversation uh and a conversation it uh it was immediately actually uh I think you know we published a white paper on I think June 18 of 2019 if I'm not mistaken and I was testifying in front of Congress maybe three weeks later uh and so that uh that was a pretty pretty uh rapid response uh wow you know three weeks later from white paper to in front of Congress it's gonna be a record I think

that's a that's a record that will probably not be beaten by anyone um but uh yeah it's uh that's what happened unpacking how you ended up in front of Congress so quickly I think is uh worth worthwhile and I want to do that but I actually want to start by talking about the intersection between messaging and payments uh as someone who is intimately familiar with both maybe you can articulate the vision as to why these things fit so well together because I think when people realize like oh Facebook is doing a blockchain there was

a big there was like reverberations throughout the crypto industry but maybe you can articulate the the most bullish vision for why payments and messaging just pair so well together yeah sure and and let me break that question and and and and two and a two-part answer so like the first part is actually messaging is a great place for payments because typically when you pay someone you have to have a conversation about that payment or you have to you know someone has to ask you for money for you to actually send them the money

um and so having a messaging app where you have a conversation where you know who you're talking to and enable that thread with transactional capabilities actually fits really really well with the the objective that two people in a conversation or even a group of people in a in a group chat uh have uh have for for a payment so um so that's why it fits so well um and then the the the other part is actually you know how do you um how do you take this and and make it

available to hundreds of millions if not billions of people um actually interestingly enough in early 2018 we went to see lightning Labs team in SF and we looked at lightning as one of the ways to actually do this um and uh and unfortunately the tech just wasn't ready for prime time and certainly not for scaling to uh the type of scale that uh that meta had with uh with its messaging apps and so we felt that at the time the only way that we could actually make this work from a scalability and and finality times and

all these things uh standpoint we had to actually go build new tech and that's what we did so when three weeks later after releasing the white paper you end up in front of Congress was that expected did you see that coming or like what was the expected response to the uh the release of the DM project yeah so I mean I definitely expected both enthusiasm and a lot of pushback uh internally we had both um and I I honestly felt like

um my expectation was actually that we would get a lot more pushback in Europe and other regions than in the US uh just because it was kind of a U.S centered like or started product a product or or project um and it turned out that you know the US was the most conservative um in that sense and uh and the most aggressive in uh in dragging me in front of Congress uh in the early days of uh of the project yeah why do you think that is what's the motivation for them to have been so

conservative around this project I mean I think there was a lot of political uh influence there uh in the sense that you know um they just didn't want Facebook in the middle of uh of money uh just generally speaking um and uh the the reach of the company with its core products was just uh something that uh that scared a lot of lawmakers basically at the time my interpretation of that answer is that uh Facebook with the social network that

it has come combined with a payments Network also combined with its own currency which is what this was really started to infiltrate into the business model of the government that's my interpretation of that maybe I'll leave that interpretation to to you but uh but I feel like look I mean and and by the way it wasn't even our own currency it was really uh a a stable coin that had by all of you know today's uh stablecoin standards a lot more distributed

governance um and uh and and decision making than uh than any of of the other ones out there right now uh if you remember we had like 28 uh Libra members uh who were part of a Consortium that was behind this and uh and everyone had an equal vote in the direction of travel of the project including its stable coin so you know I think you know it served as a as a blueprint for a lot of projects that came after which is good uh and uh and

you know I think that it was uh it was a fascinating and intellectually stimulating and challenging experience so I don't regret any minute of it but it was worth a shot and uh and now uh you know we're we're trying to do something uh on on the Bitcoin blockchain using lightning um for the purpose of trying to bring an open payment protocol for the internet so still very stubbornly focused and trying to fix that problem for the world so full circle and we'll certainly get to uh what you're up to yeah I'm just

wondering on kind of never having been summoned in front of Congress like just on a human level like what's that like I mean are you is is it nerve-wracking to just be brought in those you know Congressional halls and you know to face various lawmakers and to be on the hot seat for uh whatever they want to ask and whatever every political point they want to score uh yeah what what's what's that like what was your experience of it overall well look I mean for me the the first part of it was actually um you know I'm I'm an immigrant and an American by choice and so for me there

was a a part of it which was actually okay you know this is actually an honor that I guess to go and defend a project that I really deeply care about in front of uh uh you know our our highest uh Authority or chambers of of of legislature uh in our country so uh and you know that was particularly true in the Senate room which is a very impressive room with you know marble adorned walls and uh and a big seal of the Senate um and you know there there are

different modes of uh of testimonies and you know when you're the single witness uh the entire attention of everyone is on you versus like a panel of experts testifying in front of Congress so I had the honor of having uh that single witness uh testimony mode and of course it's intimidating and you need to you're representing a project that's much bigger than you and a company that's much bigger than you and so a lot of a lot of pressure is on uh for you to do the best job you can do to

defend the project that you're passionate about my feeling on the arguments is that one of the strongest arguments you know I believe in in general proponents put forward but um also still crypto really puts forward today is um US Government aren't you interested in exporting the US Dollar on top of like crypto rails or open internet standards uh and if you don't do this then go look at what some of your nation state level competitors are doing namely China because they have a an export uh

strategy for their digital currency and they are very aggressive both domestically they've got that whole system set up I mean we mentioned Ally Payne and WeChat the system seems to work fairly well from a technology perspective and they're aggressively trying to export all of that to the world and so Congress if you don't wake up and let us do it or some American company do it uh then you're seating this position over to your competitors that to me was the most Salient case now you can you can put aside for a second maybe we'll come back to this whether uh

the US government was was comfortable with big Tech uh you know being being the the the carrier of of that burden but that case in and of itself it seems like the US is still not jumped uh and snapped up which is why aren't you interested in exporting the Dollar on Digital internet rails um why didn't that why did that land or did it land in in some small Pockets what's your take on that so I mean this is something I'm really super passionate and can get really worked up about um but um you know I I feel like I'm I'm

a fairly patriotic guy and I feel like I want the us to win at technologies that are going to be changing the course of uh of the the equilibrium of power uh in uh in you know a hundred year timeline right and I I definitely feel that the entire crypto industry and new payment rails and all that is definitely one of those strategic things that we absolutely cannot afford to lose and and you know currently uh as far as

you know the the regulatory uh world uh out there and the Arbitrage happening um the fact that we don't have the clarity we need to operate um and the fact that you know we're we're really not competitive I think today uh the first Bitcoin ETF was launched in Europe uh and you know we're still turning down all of the ETF applications out there that would actually enable a lot many more people to have access to digital assets and in this case Bitcoin um and so I feel like you know we're

falling behind at a rapid rate that's actually uh basically compounding to us um losing or being a losing path uh against um other nations or regions that uh that are are making really solid progress on a core technology that is actually I feel that I mean the problem is also that you know we as an industry have done a fairly poor job at explaining the real world problems that the technology solves and how it it's actually becoming

essential that you know people are are empowered with real-time digital sound transactions that are Global in nature that are interoperable I mean if there's an internet of money that happens tomorrow and we're not you know part of the discussion or we're not you know even part of being in the driving seat uh then you know we would come to regret it and I think that you know that's uh that's a perspective problem that we've had as a country

um and uh and yeah we're falling behind I think that if you're looking at what's happening now even in Hong Kong where China has kind of changed their world view in terms of what's permissible in Hong Kong as a reaction to Singapore basically dragging in the best talent to come and build crypto companies and and new technologies um you can see the world changing in Europe the same deal or in the UK now uh the the those governments are trying to attract the world's best talents to come

and go build there and we're basically turning everyone away yeah I mean so put aside any beef the US government might have with with Facebook or it's a business model but this basic idea and this this is why it's it's still very perplexing to me David I'm wondering if you could shed some light on you know whether there's any underlying power structures behind this but um the U.S you know in the in the 1990s was um very supportive very Innovative with respect to the early internet this open Communications standard and that's how

we got Silicon Valley right the US dollar dollar is also the world's leading Reserve currency so the US already has two major wins under its belt it has Silicon Valley and the success of the internet what did we do during the 90s we basically just let the internet be the internet we put up some sensible regulation in place uh we we supported our our tech companies and then that's we got what we got today I mean American entrepreneurs just brought us to this place that that's a Playbook that's worked we also have the dollars

we have the most to lose if the US doesn't stay ahead of the curve so why is it so different with like money over the Internet like why is there such a different posture and I'm wondering here if you think that's because there's a different Power structure so the internet really didn't have um a power structure in DC that it was competing with and I wonder if maybe money has a power structure that's competing with you're you're on a a podcast entitled bankless it was pretty

clear kind of what our thesis is is that there are a lot of banks out there with um some uh you know interesting power structures and definitely some ties into government in DC do you think effectively it's kind of like the banking Lobby I mean if JP Morgan are a major Bank came with uh you know the similar strategy as as Libra would they have been let in the door what's your overall take on this well so first of all you're right that anything that touches money is different um I mean there's definitely that

there's there's no technological reason uh for us globally being in the SAT State we're in of how money moves today the correspondent banking system the the fact that this is basically a messaging system uh that transits through many banking institutions with the batch settlements uh later uh in 2023 is ridiculous I mean you you could actually argue that you know structurally it's

kind of shocking that everything that we could have converted into zeros and ones and that are moving on the internet the way that is moving uh is moving the way it is and that the only thing that is not actually digitalized at scale and moves on the internet the way that everything else is is money right so there there's no technical a reason for that it's a structural reason and so yes you're you're right that there's um there's definitely a need or perception

of a need of a lot more control uh when it comes to money and there are ways to actually grants governments control over these things but I feel like the the status quo is something that generally speaking has served uh you know the establishment at large really well uh and um and uh and yeah there's hasn't been any change I mean if you look at the underlying payment networks um of Swift ACH uh and uh and the and the likes um and

even like you know the the very successful arguably the most successful fintechs of all times like the Visas uh of the world uh all of these things are innovations that happen in the late 60s to 70s right and um and you know those are are for the most part the the networks and the underlying technologies that we're all dependent on for for Global Payments so so yes there's definitely uh other power structures and incentives uh that are at play here than

just uh just the technology that a bunch of companies could actually come up with and and and and basically unlock trillions of dollars of payments that are currently not happening today uh because of the limitations of our aging rails I'm share fed now will fix all of this and maybe uh fednow 2040 will actually add smart contracts or something like this um is it I mean we can talk about that by the way I think fednow is actually a really good progress um but it's going to help banking institutions move money faster for for

them or between them um and it's a U.S solution it's not a global solution and so in Europe you have seppa and like a bunch of other countries you have different and and those systems are not interconnected with one another they're not communicating with one another and so you know the internet would not have delivered the incredible amount of value that it has if it wasn't a global open network that enabled everyone to access it and build on top of it right right I mean fed now is basically like a um

private American you know blockchain like it's not really a blockchain but Network for American Banks you know that's all it's very different than an open permission this is progress address I I'm wondering if you think it's as simple as this so we had somebody by the name of Richard Turin on the podcast uh it's been a while actually he wrote a book called cashless kind of um it was my first kind of learning episode in terms of what China is doing with um their you know digital currency and his

take was basically this in the US we've decided uh that tech companies and banks have to be separate and they can't you know become one and so we have a tech industry and we have a banking industry and our government gets very uncomfortable when these things start merging together in China um you know the banks didn't want to the tech companies to come eat their lunch the Chinese government just said not we don't care what you want um you know best solution wins and of course tech companies are much better at uh you know creating uh Technologies and

apps and solutions that actually scale and work and so what we have is the result of we have alipay and we have WeChat and they've in the banks uh lunch basically so it's back to your point of this being kind of structural in the US we've decided that our banks and tech companies should be separate at least up to this point in China they didn't as a result China has a more Advanced Digital uh money system and digital payment system is that an overly simplistic take uh I think I think there's more Nuance than that I think that

you know in China the the there's no problem of government control uh of different sectors of the industry or separate companies right they virtually control all of them um I think that in the U.S uh the it's a little different right our top Banks uh have been regulated to the Wazoo uh after the 08 crisis right and so it's de facto um you know those big banks are de facto

you know under the control and purview of the government um and so as such it's uh it's kind of an interesting world where that level of guarantee of control is making a lot of people very comfortable uh that this is basically a group of entities um that uh that should be allowed to do a bunch of different things under strict regulatory oversight and that you know if you have new entrants that are trying to do new things things and that are big

new entrants with a lot of scale that you know they they should be under a lot of scrutiny uh because of the risks that uh you know this might might pause I think you know if you would talk to a lot of the lawmakers that are on this side that's you know basically their world view that they have a bunch of really regulated entities out there that they can really control um and that you know within the bounds of uh of that regulatory framework they should be able to do things and then other new entrants basically the same