Facebook fails to seize the day with Diem stablecoin

Facebook – which now goes by the name of Meta – first unveiled plans for the currency in 2019, launching the Diem Association (then known as Libra) to govern the currency along with other companies.

Diem’s plan for the currency was to establish a stablecoin (a form of crypto that is fixed in value and not backed by any assets) that was more stable in value than other digital currencies such as Bitcoin, and thus more suitable for regular day-to-day transactions.

Facebook was reported to have created apps around the currency which would have been the main way people used the token.

However, Diem’s launch prompted an international regulatory backlash from the start, with lawmakers demanding that all development cease until they could better understand it, provide some level of regulatory oversight, and ensure there were no risks to financial stability.

There was also concern among national Central Banks that Diem could rival their own official currencies – especially as some nations and the EU look to launch their own Central Bank Digital Currencies (CBDCs)

In the end, the federal regulators in the US made it clear that the project could not go ahead, according to Diem’s chief executive Stuart Levey, who confirmed the sale of his firm’s IP to Silvergate in a statement released yesterday.

“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.”

While the sums involved were not disclosed it has been reported that Silvergate paid $200million for Diem’s assets.

Levey added that he was proud of the work that the association had achieved – which included building and testing a blockchain-based payment system with controls to protect consumers and combat financial crime.

He added: “One of our highest priorities in designing the Diem Payment Network was building in controls to protect it against misuse by illicit actors. We addressed that concern in ways that are novel in the industry, implementing numerous controls that were recognized as innovative by regulators. Among these controls was a prohibition on anonymous transactions, which pose both a sanctions and money laundering risk.

“As we undertook this effort, we actively sought feedback from governments and regulators around the world, and the project evolved substantially and improved as a result. In the United States, a senior regulator informed us that Diem was the best-designed stablecoin project the US Government had seen.”

While Diem was not able to carpe diem (seize the day) Levey added that he was confident that Silvergate was now well-placed to take this vision forward.

“Over the coming weeks, the Diem Association and its subsidiaries expect to begin the process of winding down, but we look forward to seeing the design choices – and the ideals – of Diem thrive.”