Dialogue with Lightspark Founder: A Casual Discussion on the Failure of Facebook's Stablecoin, the Fintech Ecosystems of China and the U.S., and the Development of the Global Payment Industry

Organized & Compiled by: Deep Tide TechFlow

In this episode of the podcast, Bankless invited David Marcus, who has served as the President of PayPal and joined Facebook as the VP of the Messenger app, and is currently the CEO and co-founder of a startup called Lightspark.

With this experience, David Marcus has a profound understanding of both PayPal and Facebook, allowing him to compare the similarities and differences in how the two companies approach stablecoins and their development directions. Additionally, David shared deep insights on currency, payments, globalization, and the competition between China and the U.S. in financial technology.

Read this episode's podcast notes in 5 minutes to save you 80 minutes of time.

Here are the main points of the conversation, transcribed and organized by Deep Tide, highlighting the key insights:

Host: David & Ryan, Bankless

Speaker: David Marcus (@davidmarcus), CEO & Co-founder of Lightspark

Original Title: "Why Facebook's Stablecoin Failed with David Marcus"

Video Attribution: Bankless Podcast

Podcast Link: Link

Release Date: August 21

The Motivation and Goals Behind Facebook's Libra Project

• The host asked what motivated Facebook to advance the Libra project.
• David responded that Facebook has a historical tradition of bringing breakthrough technologies to the public and helping distribute them to solve various problems, and the Libra project was seen as a way to continue this model.
• David outlined that Libra is a project aimed at leveraging blockchain technology to provide better financial services to billions of people globally, including a new blockchain, a smart contract called Move, and a stablecoin named Libra. The project aims to create a global, open, and decentralized payment network that allows people to send and receive funds easily, quickly, and at low cost, with the stablecoin being essential to achieving this goal.
• David mentioned that the Libra project was an attempt by Facebook to address payment issues, with the core idea being to liberate it from Facebook's control and governance, changing the existing financial system to be more open, inclusive, and efficient, thereby having a positive impact globally. Facebook hoped to leverage its vast user base and distribution capabilities to provide better financial services to the unbanked globally, especially those excluded from the existing banking system.
• David talked about Facebook's active participation in various fields, including AI and virtual reality (VR), contributing many open-source projects. For example, Facebook developed numerous open-source AI tools and frameworks to enable developers to build and deploy AI applications more easily, aiming to promote the development and innovation of AI technology and extend its application to broader fields.

The Close Connection Between Chat Applications and Payments & Challenges in Global Payments

• The host mentioned payment applications in China and Japan, such as WeChat and Alipay, and asked if they were an inspiration for the Libra project.
• David pointed out that the payment market in China is very different from that in the West. In China, due to the low penetration of credit cards, mobile payment applications (like WeChat Pay and Alipay) are very popular, providing users with a convenient, fast, and secure payment method. In Western countries, credit cards and modern payment methods have existed for a long time, and although these payment experiences are not based on the latest technology, mobile payment applications may take more time to become widespread.
• The host asked why chat applications and payments are so closely linked. David believes that when people make payments, they often need to have a conversation with the other party. Therefore, adding transaction features to a chat application is very natural, as this functionality fits well into conversations between two people, and even among multiple people in group chats.
• David mentioned that one of his goals when he joined Facebook was to add payment features to the chat application. This feature is currently only available in the U.S., but WhatsApp is also part of Meta (the new name for Facebook). Their idea was to enable global payments on these platforms, allowing people to send digital currency around the world in a very simple and cost-effective way. They believed this would solve real problems and unlock significant value.
• The host noted that in the cryptocurrency community, developers typically just release code, and then people can run it on their own nodes; Satoshi did not seek permission from Congress or any other entity before releasing Bitcoin. The host asked if Facebook needed to seek government permission to launch the Libra project.
• David explained that when you are developing such a project in a company with billions of monthly active users, you cannot just release code and hope everything goes smoothly like in the cryptocurrency community. David mentioned that when they were developing the Libra project, there were many rumors about the project, which were much worse than the reality. Therefore, they decided to publish a white paper detailing their intentions, technology, and the project's development direction, hoping to attract more people to participate and discuss compliance and regulatory requirements with regulators worldwide.
• David mentioned that three weeks after the release of the Libra project's white paper, he was summoned to testify before Congress, where he was asked various questions, including political ones. He explained that due to Facebook's central role in public policy and its influence on various topics, they could not just release code like the cryptocurrency community; instead, they needed to engage with regulators worldwide and discuss compliance and regulatory requirements. As an immigrant who chose to become a U.S. citizen, David felt it was an honor to advocate for a project he deeply cared about in Congress.
• David mentioned that in early 2018, they met with the team from Lightning Labs to explore the possibility of using the Lightning Network. (Note: The Lightning Network is a second-layer payment protocol designed to address scalability issues on the Bitcoin blockchain, enabling fast, low-cost transactions and supporting micropayments.)
• At that time, the technology was still in its early stages and not mature enough to meet Facebook's scale requirements, so they began considering other solutions, which led to the birth of the Libra project.
• David emphasized the challenges of promoting payment features. He believes that the existing payment systems have many limitations and cannot meet the demands of modern global payments. He hopes to promote a global payment system that enables seamless payments worldwide.

U.S. Concerns About Stablecoins Like Libra

• The host asked why the U.S. is so conservative about the Libra project.

• David believes that many legislators are uneasy about Facebook entering the currency space. They worry that this could have a significant impact on the existing financial system and potentially lead to regulatory and compliance issues.

• David explained that the Libra project is supported by a stablecoin backed by a coalition of 28 Libra members, which includes some of the world's largest financial institutions, technology companies, and non-governmental organizations.

• David emphasized that Libra is not Facebook's own currency. Each Libra member has equal voting rights in the project's direction. This structure is designed to ensure fairness and transparency in the project and prevent any single member from having too much influence.

• David stated that the U.S. is falling behind in cryptocurrency and new technologies. He pointed out that other countries are attracting the best global talent to build crypto companies and new technologies, and the U.S. needs to be more open and supportive of these technologies to maintain its competitive position globally. The cryptocurrency and blockchain industry needs to better explain the value of these technologies, clearly articulate how they solve real problems, and what benefits they bring to people.

• David emphasized that explaining the real problems that technology solves is crucial for people. Only when people understand and accept these technologies can cryptocurrency and blockchain realize their potential and bring more convenience and efficiency to payments globally.

Challenges of Modern Payment Technologies and the Possibility of Global Currency Circulation

• The host mentioned that the U.S. government had an open attitude toward the internet in the 1990s, allowing businesses and entrepreneurs to innovate and develop freely, which made the U.S. the center of the internet and attracted the best global talent.
• David mentioned that the payment networks and underlying technologies we rely on were innovated in the 1960s and 1970s. These technologies may have been advanced at the time, but over time they have become outdated and cannot meet the demands of modern global payments. Modern technology has developed enough to enable global currency circulation. However, despite being technically feasible, there are still other limitations and challenges.
• David believes that we cannot rely solely on technology to solve problems. He explained that while technology is an important tool for solving problems, we also need to consider other power structures and incentive mechanisms that affect the realization and effectiveness of global currency transfers.
• David explained that currency and financial systems involve national economic policies, monetary policies, and financial stability. Therefore, we need to collaborate with governments and regulatory bodies to develop appropriate policies and rules to ensure the smooth transfer of global currencies. At the same time, we need to consider how to incentivize all parties to participate in global currency transfers and jointly promote this process.
• David talked about the importance of open networks. He believes that open networks allow everyone to access and build on them, which will facilitate the flow of currency globally, making funds more mobile between different countries and regions, promoting the development and prosperity of the global economy.

Separation and Integration: A Comparison of FinTech Ecosystems in China and the U.S.

• The host mentioned the U.S. "FedNow" project, launched by the Federal Reserve, aimed at providing real-time payment and settlement services for banks, which is a response from the U.S. government and banking industry to the development of financial technology.

• The host mentioned a viewpoint:

  In the U.S., the government and regulatory agencies have decided that technology companies and banks must remain separate, meaning that technology companies cannot directly provide banking services, and banks cannot directly provide technology services. This strategy aims to protect consumer interests and prevent market monopolies and financial risks.

  In contrast, in China, the government does not care about the banks' wishes, allowing the best solutions to win out. As a result, technology companies (like Alipay and WeChat) have replaced banks as the primary providers of financial services, which has promoted the development and innovation of financial technology, making China's financial services more convenient and efficient.

• Due to the different strategies taken by the U.S. and China in the field of financial technology, different results have emerged: U.S. banks remain the primary providers of financial services, with technology companies mainly providing auxiliary services; while in China, technology companies have become the main providers of financial services, with banks gradually shifting to providing infrastructure and support services.

• David believes that the situation in China is different from that in the U.S. The Chinese government has strong regulatory and control power over both financial technology companies and banks, allowing it to more flexibly promote the development and innovation of financial technology. In the U.S., large banks have been under strict regulation since the 2008 financial crisis and are effectively under government control and supervision.

• David stated that the U.S. government is satisfied with the existing regulated entities and has strong regulatory and control power over existing financial institutions. He explained that the U.S. government's conservative attitude toward new entrants in the financial technology field is because these companies may impact the existing financial system and monetary policy, leading to financial risks and instability.

• David pointed out that there is currently a significant lack of competition, which harms the most vulnerable people globally. He believes that many people in the U.S. are excluded from the banking system, which is shocking. He explained that problems in the U.S. financial and regulatory systems lead to insufficient financial services and financial inequality. This makes it difficult for many people to access financial services, resulting in social unfairness and inequality.

• The host noted that the complexity of the U.S. financial system, due to multiple layers of regulation and laws, contrasts with the relative flexibility and innovation of the cryptocurrency field, which may lead to a slower and more challenging response to emerging technologies. Meanwhile, there may be significant differences in the regulatory attitudes of U.S. states and the federal government toward cryptocurrencies, posing challenges for businesses and innovation as they need to meet multiple different regulatory requirements simultaneously.

• Regarding whether there is a lag in the regulation of emerging technologies by U.S. regulatory agencies, David pointed out that the rapid development of cryptocurrencies and blockchain technology requires regulatory agencies to spend more time adapting to and understanding these technologies, leading to regulatory lag.

• The host and David discussed the gaps in the U.S. financial system in certain innovative areas, particularly those related to DeFi. David pointed out that DeFi projects build financial applications using blockchain technology, enabling financial transactions and services without traditional financial intermediaries, while the traditional financial system struggles to fill the gaps created by this new type of financial innovation.

• David believes that regulatory agencies need to find a balance to support innovation while ensuring the stability of the financial system and consumer protection. However, regulating emerging technologies often requires balancing safety and innovation, which can be a complex challenge.

The Impact of Financial Competition on Economic Value

• David mentioned conversations with unbanked individuals. They expressed a preference to pay 10% to cash their paycheck rather than face unpredictable fees associated with bank accounts, as the fees in bank accounts are opaque and unpredictable, leading to their distrust and dissatisfaction.
• David believes this limits a significant amount of value and GDP growth. He explained that the lack of competition leads to insufficient financial services, increased financial costs, and reduced financial efficiency, causing many transactions and currency transfers to not occur, resulting in value and GDP loss.
• David emphasized the importance of competition and financial technology. He believes competition can promote the provision of financial services, reduce financial costs, and improve financial efficiency. Financial technology can provide more convenient, transparent, and reliable financial services for the unbanked, solving their problems, which will promote transactions and currency transfers.
• The host mentioned U.S. support for the internet and asked why the U.S. has a different attitude toward currency on the internet.
• David believes that, unlike the internet, currency has a competing power structure. Currency is a tool of power for governments and central banks, closely related to existing power structures and interests. Therefore, the U.S. government may not want Facebook to participate in the currency space, as this could impact the existing power structure and interests.
• The host pointed out that the U.S. financial and monetary systems have issues, such as high costs of payment transactions, the use of credit cards, and checks, which prevent many people from accessing financial services, leading to social unfairness and inequality.
• David pointed out that checks are essentially a way of writing a private key on paper and handing it to someone else, which is very insecure. He explained that checks can be forged, altered, or stolen, leading to financial risks and losses, making it an unsafe method of payment and transfer.
• The host noted that U.S. banks and technology companies seem unaware of the issues with the existing banking system. He believes this is why we see the adoption of cryptocurrencies, as they provide an open alternative that people can use to bypass the existing flawed system, where the current banking system suffers from insufficient financial services, high costs, and low efficiency, prompting people to adopt cryptocurrencies.
• David discussed how some countries' central banks and governments devalue their currencies, leading to hyperinflation, causing people's money to lose value very quickly. He believes that currency devaluation and hyperinflation lead to a decline in people's purchasing power, a decrease in living standards, and exacerbated social unfairness and inequality, causing people to lose trust and confidence in the currency and financial system.
• David stated that in these countries, the adoption rate of cryptocurrencies is higher because people are looking for a fair way to store value to preserve the value of their hard-earned money. He believes cryptocurrencies can serve as a safe, transparent, and reliable means of storing value, protecting people's wealth from currency devaluation and hyperinflation, which will promote the provision of financial services, lower financial costs, and higher financial efficiency.

Bitcoin & Lightning Network

• The host turned to the topic of cryptocurrencies, asking about the role of cryptocurrencies in the overall financial system and what David is building at Lightspark.
• David explained that Lightspark is building a set of tools and software aimed at facilitating or accelerating the adoption of the Lightning Network as an open payment protocol on the internet, which will enable us to conduct cheap, low-cost, and interoperable open payments in a way that aligns with the essence of the internet.
• David chose the Lightning Network because he believes this network can operate like the internet, free from control by any single entity or corporate group, and he thinks the only network and asset that meets this requirement is Bitcoin.
• He explained that the Lightning Network is a channel-based payment system, which is inherently very counterintuitive. They have been working hard to align the behavior of the Lightning Network with the expectations of businesses; they are not a consumer-facing company but are building tools that enable both large and small companies to send and receive value on the internet in a predictable, reliable, and simple way.
• David stated that he supports the use of stablecoins on the Lightning Network as long as it becomes possible. He believes that if you rely on a stablecoin or an asset as the core settlement asset of a payment network, then you have a problem. Stablecoins need to have reserves, and someone must control those reserves, but that reserve controller creates a single point of failure for the entire payment network.
• He explained that a part of Bitcoin on the Lightning Network is like a TCP packet, which is a network for transmitting the value you want to transfer from point A to point B. You can make such transfers with Bitcoin, but most people do not want to transact with Bitcoin; they want to buy Bitcoin and hold it for as long as possible.
• The host asked why they chose Bitcoin and the Lightning Network instead of Ethereum.
• David stated that they are too dogmatic about one thing in the industry; we should focus on solving problems rather than arguing about which solution is better. He stated that he is not someone who only values Bitcoin; both Bitcoin and Ethereum have their advantages, and Bitcoin is the best choice for handling everything related to currency and payments.
• David explained that we need to provide people with choices that can be regulated. No one wants to see malicious activities like money laundering and terrorist fund transfers. He pointed out that for such activities, new networks are harder to operate than traditional systems because they are easier to catch.
• David noted that we do not want to see global chaos; we need a system of checks and balances to provide people with truly reliable choices. He believes these choices should be well-regulated to protect consumers and allow governments and good governance to implement monetary policy and control their countries to some extent. He explained that from a technical perspective, we need to unlock all these features for people while enabling good governance to function.
• The host stated that if the outcome of the entire cryptocurrency experiment is that the world has another option for digitally storing value, rather than just fiat currency, then we have won. If we can also achieve a banking system based on an open, trustworthy, permissionless, internet-style decentralized architecture, then that is the victory we are all seeking.