Social media giant Facebook Inc. is in talks with the US Commodity Futures Trading Commission (CFTC) about the future of its cryptocurrency project, according to a report from the Financial Times on Sunday.
The FT said that the talks were “a sign of how the world’s largest social media platform is laying the groundwork for an ambitious push into payments,” although CFTC Chairman Christopher Giancarlo said that the conversations between the two entities are still in “very early stages.”
“We’re very interested in understanding it better,” he explained, adding that it’s far too early to make any decisions. “We can only act on an application, we don’t have anything in front of us.”
Globalcoin May Not Fall Under the CFTC’s Scope, But Facebook is Taking a ‘Better-Safe-Than-Sorry’ Approach
Facebook is working on issuing a cryptocurrency that is reportedly known internally as “GlobalCoin.” The cryptocurrency will be a stablecoin (a cryptocurrency with a set value) and will initially be usable on Facebook and Whatsapp, Facebook’s encrypted messaging subsidiary. Eventually, however, it seems that Facebook is hoping that the crypto will be used across the internet.
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The Business Times explained that because the CFTC has authority over futures and derivatives, any financial instrument that is tied to GlobalCoin will fall under its purview–so, if GlobalCoin is traded via futures contracts or another derivative, the CFTC will need to get involved. However, if GlobalCoin is traded exclusively via cash-based markets, it will not fall under the CFTC’s regulatory scope.
Giancarlo explained that because Globalcoin will likely be secured against the US dollar, pre-existing currency futures could eliminate the need for a derivative linked to it. “That’s very clever,” he said, although he explained that some “basis risk” may still exist–this is when the price of an underlying asset does not move in perfect synchronization with its derivative.
The CFTC isn’t the only regulator that Facebook has been in contact with–according to FT, the social media network has also been in talks with the US Treasury, although neither party has spoken publicly about the interactions just yet.
As the project proceeds, however, it’s likely that the Treasury’s Financial Stability Oversight Council will be in close contact with Facebook to ensure that the project is keeping in line with anti-money laundering (AML) and know-your-customer (KYC) regulations.
Because of the scale of the project, Facebook’s interactions with regulators could cause them to clear up any uncertainty around the legal aspects of cryptocurrencies.