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Facebook’s Diem Crashes to Earth

Categories : Cash connects people, Cash does not require a technology infrastructure, Future of Cash
February 3, 2022
Tags : Central Bank Digital Currency, Cryptocurrency, Diem, Regulators
The Facebook-led Diem Association is selling its assets putting an end to the social media’s controversial ambitions in digital money and payments, and a two-and-a-half-year battle with regulators and central banks across the globe.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

On 18 June 2019, Facebook announced its plan to launch Libra, a stablecoin built on a tailored version of blockchain technology designed to let people shop and make low-fee money transfers globally. Libra aimed to be the first global peer-to-peer payments network. It claimed it would serve the 1.7 billion people in the world who lack access to traditional banking. The new currency was initially tipped to launch in the first half of 2020.

Massive Pushback from Regulators

The project triggered a massive backlash from government regulators and central banks around the globe, and the general public, over monetary sovereignty, financial stability and privacy.

US regulators and politicians expressed concerns within hours of the announcement.

On July 15, 2019, Facebook announced the currency would not launch until all regulatory concerns were met and Libra had the “appropriate approvals”.

Consumer advocates and public interest groups have opposed Diem on privacy grounds and rejected the tethering of financial services to mass surveillance. Scholars have highlighted several antitrust risks associated with Diem due to the sheer scale of Facebook and collusion between association members.

Dwindling Backing from Sponsors

The initial Libra association was initially backed by up to 28 organisations, including payments service providers such as Visa, MasterCard, PayPal, Stripe and Vodafone. In October 2019, these organisations left the consortium. “We will continue to evaluate, and our ultimate decision will be determined by a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations,” a Visa company spokesperson said to the Financial Times in October 2019.

On 1 December 2020, Libra was renamed Diem, which “denotes a new day for the project”, according to the press release. Still, for most observers, it was an attempt to distance the project from Facebook in the eyes of regulators. Facebook’s rebranded its Calibra wallet to Novi. Diem moved its headquarters from Switzerland to the United States. In October 2021, Facebook Inc. rebranded itself as Meta Platforms.

More importantly, the initial ambition of a global digital currency backed by a basket of national currencies was considerably scaled back to a series of stablecoins backed by the country’s currency. At the end of 2021, David Marcus, the initiative’s founder, left Facebook.

On 31 January 2022, a press release announced the sale of its intellectual property and other assets related to the running of the Diem Payment Network to Silvergate Capital Corporation. “Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead. As a result, the best path forward was to sell the Diem Group’s assets, as we have done today to Silvergate.” The assets were purchased for $182 million. Silvergate is a licensed bank and has been an early mover in the digital currency industry. Now it plans to take over the project and go ahead with its stablecoin launch this year, in what appears to be yet another rebranding of Diem.

From Diem to CBDC

So, what is the legacy of the Libra/Diem venture? Does it mark the end of private currencies? Certainly not. After all, the new owners of Diem claim they will launch the stablecoin this year. Libra/Diem does seem to have achieved two things, albeit involuntarily. Firstly, it placed cryptocurrency regulation on the agenda of finance ministers, central bank governors and CEOs, and the front page of the media. Secondly, it accelerated the research and developments of what is often perceived as central banks’ response to private currencies: Central Bank Digital Currencies. The Indian finance minister, in her budget presentation this week, announced that the Reserve Bank of India would launch a digital rupee in the upcoming year and would introduce a 30% tax on cryptocurrency trading profits. According to the Atlantic Council CBDC tracker, nine countries have launched a digital currency, and 14 are in a pilot stage.

At the time of writing, the market valuation of Meta plummeted 20%, wiping out $200 billion in value.


This post is also available in: Spanish