One way this might fail is through big Validators with misaligned incentives.

Suppose Coins become popular and worth something in the real economy. A big company like Facebook (or Google, Amazon, Microsoft, etc.) might become a Validator and endorse all their existing users.

They would do this because it would add value to their platforms. Most people can't or don't want to use complex new technology (e.g. keeping a private Coin wallet secure and backed up). Facebook will tell them: just click here to get "coins" to your FB account every day! You can use those coins to buy things from / on Facebook, like silly apps or even ad placements. And you can even convert them to real dollars (at a fluctuating non-guaranteed rate)! What's not to like? So of course all the FB users will sign up. Maybe FB will even opt everyone in by default.

Facebook already has a Real Name Policy, what could go wrong? Millions of people will happily trust the Facebook validator, so transitively almost everyone will trust them. But creating fake/duplicate FB accounts is actually easy (they might be removed, but not immediately). This will drive down the global value of the coins; businesses other than Facebook will stop accepting them. Eventually the whole project will become useless outside FB, or several big inter-operating social networks.

And when this has happened, even if everyone 'in the know' agrees that Facebook is a lousy validator and should not be trusted, they will never convince all their non-techie friends to dis-trust Facebook, so everyone will keep trusting Facebook transitively through no fault of their own. There are several reasons for this:

1. People who created their Coin accounts via Facebook might not even have their private keys locally. If they're just using their Facebook accounts for authorization to access their coins, they can't open a non-FB Coin account without actually closing their FB wallet. But FB might not let people (or make it easy to) close their FB wallet without closing their whole FB account.

2. If a user dis-trusts FB, then FB can (as an automatic policy) dis-trust them back. Then, anyone who dis-trusts FB risks not being able to spend their coins on FB anymore. And we know that it's impossible to coordinate an exodus from FB; when people have to choose between FB and <the rest of the online world> many choose FB.

3. FB can sell certain services to users and demand they pay via their personal coins, not someone else's. They would bill this as making sure each FB account can only buy up to X resources of some kind, e.g. pay-for-use items in a competitive online game. Then if you choose to dis-trust FB, and they dis-trust you back, you can't buy those services at all; that's a powerful incentive to manage your Coin account on FB and not to leave.

4. FB might make it cumbersome or just impossible to pay for FB services from non-FB wallets.

Counterpoint: if people pay FB in Coins, then FB will amass a lot of Coins. It will want to be able to spend those Coins elsewhere (e.g. convert them to dollars). That's an argument that FB would want to keep the value of Coins outside FB high, contrary to my scenario.

Counter-counterpoint: if FB has a big enough network of partners / businesses willing to buy Coins with dollars, it won't care about the free Coin market. Who would want to buy Coins? Anyone who wants to use them to buy FB services, in more than the amount they get to their private UBI account! So e.g. advertisers and publishers.