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Novi is the new Facebook Pay

"Facebook has once again surprised us with the announcement of the first pilot in Novi, the reissue of the digital wallet that was announced on June 19, 2019 under the name Calibra."
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I started writing about the disruption that blockchain and new crypto would bring when Facebook announced the intention to throw libra in 2019 with a consortium of 26 companies to develop its distribution ecosystem. A lot has happened since then and at no point has Facebook given up its grain in redefining the payments landscape.

Now Facebook has surprised again with the announcement of the first pilot in Novi, the reissue of digital wallet which he announced on June 19, 2019 under the name Calibra. Since then Libra changed its name to Diem, and much more importantly, it will no longer be a stablecoin tied to a basket of currencies. fiat, but one stablecoin currently linked only to the US dollar and issued according to the latest news by the US bank Silvergate Banking, also moving its operations from Switzerland to the United States. But Diem is still in the starting square.

With Novi, which in principle is a digital wallet like Google Pay or Apple Pay and that does not need any authorization to be launched, and that runs on mobile operating systems such as IOS or Android that dominate mobile phones internationally, Facebook enters the payment information business without launching its stablecoin yet, which by the way, being systemic from the outset, should be authorized ex ante by regulators in several countries and be subject to the principles of market infrastructures according to the recent clarification in the joint document of CPMI and IOSCO ratified by the recent G7 statement.

It must be remembered that current stablecoins such as Tether, USDC and the rest, although they are not specifically regulated, they are under licenses of money transmitter and that even at the time Office of the Comptroller of the Currency (OCC) in the US it considered them as a valid payment instrument along with the usual banking channels.

Facebook has chosen USDP / Paxos as the first stablecoin to integrate your Novi digital wallet, and it will be guarded in the exchange Coinbase seemingly with a cold custody, not online, tightening the security of the keys. Its aim is still to issue its own Diem stablecoin when authorized and Novi will have other cryptocurrencies and will be interoperable with other digital wallets. Therefore Facebook has already entered to compete with Apple and Google, and if digital assets based on blockchain and cryptography are successful, This could be a new race between big technology companies given the slowness of banks to get involved in crypto assets, not only for the retail public but also for more qualified customers. A whole new market is being created and the banking, traditional custodian and provider of financial solutions is not advancing fast enough.

USDP / Paxos is as of today the 7th stablecoin in the world, the 103rd in the total ranking of cryptocurrencies with only $ 945 million issued on the day of Novi's announcement. USDP / Paxos is a fiat collateralized stablecoin and invests 100% of its reserves in “cash or cash equivalents in US Banks”. A sign of success would be that the capitalization of USDP / Paxos multiplies exponentially when Novi is fully operational and expands not only in the US and Guatemala, the first two countries where the launch is scheduled. USDP / Paxos is a token of the ERC-20 standard of the Ethereum blockchain network, therefore it runs on a public blockchain, not like the permissioned blockchain of the original Libra proposal.

Novi will be launched in the United States, a sufficient testing ground, which has demonstrated a remarkable export capacity, since what is approved by its experienced regulators is likely to end up being so in other countries.

And it will also be launched in parallel in Guatemala, a test that will make it possible to use the capacity of Novi and the stablecoin USDP / Paxos to send remittances as an alternative to normal dollars. The contrast between Guatemala and El Salvador is remarkable, which has preferred Bitcoin but has also gone further, making it legal tender along with the US dollar. It should be clarified that contrary to El Salvador, Guatemala does have its own currency (the Quetzal), which is the only legal means of payment in the country. But Guatemalan residents could receive USDP / Paxos on their mobiles through Novi and convert them into physical dollars or quetzales at ATMs.

Facebook has not announced plans to extend Novi to the EU, but it could not take long to do so, with stablecoins in euros. In the EU there is no regulation for the authorization of digital wallet apps, although in the future MiCA regulation they will be regulated (art 123) and providers would have 18 months to adapt to the regulation since the regulation was approved, even with an accelerated procedure if it is a service already in force. The point is that there are no relevant euro stablecoins yet. The biggest is Stasis Euro In the 445th place in size of cryptocurrencies according to Coinmarketcap, Europe as a remittance sender is smaller than the US, but has a sufficient market in Eastern Europe, North Africa and Francophone countries of Sub-Saharan Africa.

Why aren't there stablecoins in euros of a certain relevance as is the case in the US?

Europe is caught in the middle wagon of cryptocurrency innovation and the influence of its banking market, the relative low financial culture (with respect to the Anglo-Saxon countries) and its fragmented and internationally small capital markets, together with a more dispersed attitude of the national regulators is creating significant heterogeneities. In addition, much of the focus of central banks is on the possible future launch of CBDCs, on MiCA and on national or European regulations for digital transformation and resilience, such as the DORA or Pilot Regime regulations for the transformation of market infrastructures.

Some questions arise from the movement of Facebook with Novi, and I will list some of them:

  1. Can a stablecoin be considered systemic not only because of the size of the person who issues it, but because of the network or payment gateway through which it transits?
  2. An app like Novi is not a financial service per se, but within Facebook, it can greatly increase the volumes of the stablecoins that comprise it, while increasing the volumes in custody and reinforcing the emphasis on the necessary security of the assets. infrastructures.
  3. A stablecoin tied to a fiat currency is nothing more than a “convenience substitute” (with the possible additional advantages of programmability and integration in DeFi networks for example) compared to the reference fiat currency, therefore a competitor of future CBDCs. and of the issuing central banks. Will there be any limits if the market grows exponentially?
  4. Stablecoins become huge holders of the backing assets, and indeed Fitch Ratings has issued a notice of disruptions in certain markets due to the size of investments in short-term instruments by stablecoin vehicles. Could it be conceivable in the future that stablecoins would issue only with money from central banks and have access to direct accounts such as commercial banks?
  5. What should be the position of the bank before the arrival of new instruments such as stablecoins that can replicate bank deposits to transfer money and give entry to new competitors such as BigTechs with their digital wallets?

Enrique Titos

Independent Director. Advisory Councilor.

Director of the Working Group “Digital Money and Payment Systems".

Fide Academic Advisor

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