How did Diem, Facebook's ambitious stablecoin project, come to an end step by step?
Original source: BitpushNews
Original source: BitpushNews
Author: David Attlee
On January 31, Meta, formerly Facebook, announced the withdrawal of its stablecoin project Diem (formerly known as Libra). Intellectual property and other assets related to the operation of the Diem payment network will be sold to Silvergate Capital Corporation, marking the end of Mark Zuckerberg and his company's ambitious stablecoin project. It also marks the end of a groundbreaking plan unveiled in 2019 that promised to bring a global alternative to fiat currencies to Facebook's 2 billion user base. Here's how the program went from its initial announcement to its end.
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Phase 1: White Paper
On June 18, 2019, the company released a white paper on a future global stablecoin called "Libra". The asset is expected to be operationally backed by its own blockchain and financially backed by reserves of various assets (baskets of bank deposits and short-term government securities).
From the start, Libra didn't try to pretend to be a decentralized cryptocurrency — its governance mechanism was designed as an alliance (the "Libra Association"), which includes Mastercard, PayPal, Visa, Stripe, eBay, Coinbase, Andreessen Big names like Horowitz, Uber, etc. Facebook itself "is expected to maintain its leadership." The social media giant also plans to maintain its influence by operating wallet Calibra.
The project was initially positioned not as a speculative asset, but as a payment tool for services. The minting of new tokens is linked to the acquisition process of "authorized resellers" among the members of the association.
initial feedback
The white paper has received mixed feedback from the crypto community. Some industry leaders decried Facebook's project for decentralization and security compromises. For example, Bitcoin advocate Andreas Antonopoulos has denied Libra's cryptocurrency status on the grounds that it lacks the fundamental characteristics of any cryptocurrency, such as publicity, neutrality, censorship resistance, and borderlessness.
Others, however, prefer not to focus on the actual project's design, but rather on Libra's potential impact on global cryptocurrency adoption. Tron founder and CEO Justin Sun said at the time that “some of the largest companies in the world are beginning to recognize the promise of cryptocurrency and see its potential to change the way consumers and businesses around the world interact.”
As Ross Buckley, a digital economy expert and professor at the University of New South Wales, warns in his paper, "Libra may very well be able to go from 'too small to care about' to 'too big to fail' in a very short period of time." The ultimate example...this is another currency.” Buckley is certainly not the only one worried, Libra’s inherent strength is evident and it is destined to receive significant pressure from regulators.
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Phase Two: Regulatory Resistance
It took less than a month for the U.S. Senate to get Libra co-founder David Marcus to testify in a special hearing in which the Facebook executive was grilled fiercely. Notably, it wasn't just Sen. Sherrod Brown, but his nemesis, Sen. Pat Toomey, who bombarded Marcus with pointed questions (although Toomey also called for not "strangle babies in cribs"). Even then-President Trump took notice of news of Facebook’s private currency, and he responded with his signature expression:
"If Facebook and others want to become a bank, they must seek new bank charters and be subject to all banking regulations like other national and international banks."
The boycott is not limited to the United States. In September 2019, French Finance Minister Bruno Le Maire announced that France and Europe as a whole would not tolerate Facebook's new project because "the monetary sovereignty of countries is at stake." A few weeks later, the Bank of England issued a warning that Libra would have to meet all the necessary standards for traditional banking compliance in order to be legalized in the UK.
This was followed by the first wave of exits from some of the founding members of the Libra Association. Its image took a huge hit as companies such as PayPal, Visa, Mastercard, eBay and Mercado Pago withdrew from the project.
By October 2019, five European countries—France, Germany, Italy, Spain, and the Netherlands—formed an unofficial task force to block Libra's European launch. The pressure mounted to a point when the chief executive of the Netherlands' largest bank, Ralph Hamers, publicly commented that any business with Facebook might be cut.
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Phase 3: Rebranding to no avail
Facebook responded to this pressure with "Libra 2.0" in April 2020. The updated white paper introduces four key changes "to address regulatory concerns," most notably the move from a single currency to a series of stablecoins, each with a single national currency (e.g., the U.S. dollar, euro, or euro). and GBP) support.
As Brieanna Nicker of the Brookings Institution wrote at the time, “It could also be seen as a scaling back of Facebook’s ambitions, as the proposal is now more of a PayPal with different technological underpinnings than a sovereign currency competitor.” .” Other announced changes include an enhanced compliance framework and a transition from permissioned to permissionless blockchains within five years.
At the time, the project was still opposed by G7 officials. Federal Chancellor Olaf Scholz, then finance minister, called Diem a "wolf in sheep's clothing" and said the name change had not convinced regulators.
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step back further
2021 didn't bring good news for Diem. With the long-awaited launch delayed yet again (by then, FINMA had still not granted the Switzerland-based Diem Association a payments license), on February 23 the ECB asked EU lawmakers to have veto Unilaterally block any private stablecoin project if necessary.
In September 2021, The Washington Post reported that Facebook's top management was trying to reach some sort of compromise with U.S. regulators. But apparently, negotiations stalled as Marcus claimed Diem had "addressed all legitimate concerns," which drew public objections from lawmakers.
House Financial Services Committee Chairwoman Maxine Waters countered that the rebranding had nothing to do with addressing major privacy, national security, consumer protection and monetary policy issues. The top Republican on the same committee, Rep. Warren Davidson, D-I., parodied Marcus' blog post sarcastically:
"I'm not sure how Facebook and the Diem Association can address 'all legal concerns' as regulatory uncertainty permeates many aspects of the crypto space."
On December 1, Marcus, the official head of Novi and the spokesperson of the Diem project, announced his resignation. Marcus, who has been with Facebook since 2014, did not elaborate on why he made the decision, along with Diem co-founders Morgan Beller and Kevin Weil. With Marcus gone, it's hard to expect anything good coming into 2022.
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Is this the end of Diem?
After news of Facebook's parting ways with Diem broke, Buckley said he foresaw the regulator's reaction to the project as early as 2019, and he firmly believes that this is indeed the end of the stablecoin project: "If it survives, I'm really sure." would be surprised. This is a project designed to benefit from Facebook's size and reach, and it's now a scarred product."
Buckley believes the company exaggerated its status as one of the largest technology companies in the world at the time. It has not been embraced by a wide range of regulators around the world, as a digital currency with a user base of 2 billion clearly goes far beyond the social media business:
“Facebook did the typical tech-company approach to this by rushing forward and then seeking forgiveness, rather than seeking permission up front. This may apply to telecoms, but financial regulators want respect, as do governments when it comes to their monetary sovereignty .This backlash is partly due to financial regulators and governments initially learning about this from the media, rather than Facebook directly and in advance.”
