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Facebook-backed Diem cryptocurrency project shuts down after pushback from regulators

Rebranding and restructuring efforts couldn’t save the Diem stablecoin which faced staunch opposition right from the start.

The Facebook-backed Diem cryptocurrency project has called it quits after nearly three years of fighting to stay alive. The decision was made after it “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,” Diem CEO Stuart Levey said in a press statement.

This is a significant setback for Facebook (now Meta), but the result doesn’t come as a surprise as Diem faced multiple challenges in the last two years, specifically from lawmakers and regulators around the world who were worried about the impact the currency will have on the financial system and the control that central banks assert over money.

Libra to Diem: A timeline

  • The launch of Libra: Facebook, in 2019, brought various startups and financial services giants together to create a stablecoin called Libra and a wallet called Calibra for it. However, after facing massive opposition from regulators around the world, many companies including PayPal, Visa, and Mastercard decided to withdraw from the project forcing the association to go through a complete makeover.
  • Rebranding as Diem: In December 2020, Libra Association announced that it will now be called the Diem Association as part of Facebook’s attempt to rebrand, restructure, and distance itself from the project. While Libra was supposed to be backed by a basket of global currency, Diem was meant to be pegged to the US dollar.

“I believe that this is something that needs to get built, but I get that I’m not the ideal messenger for this right now,” Zuckerberg told Congress in a 2019 about Facebook’s cryptocurrency ambitions.

  • Calibra renamed Novi: Facebook in December also announced that it has renamed the Calibra wallet as Novi.
  • Moving headquarters from Switzerland to the US: In May 2021, Diem moved from Geneva to Washington, DC. The company also abandoned its plans for a Swiss payments license and instead partnered with Silvergate, which was to become the exclusive issuer of the Diem USD stablecoin and manage the Diem USD reserve.
  • Diem’s stablecoin project: In 2021, CNBC reported that Diem was launching a pilot with a single stablecoin pegged to the US dollar later this year.
  • WhatsApp launches crypto payments pilot: In December 2021, WhatsApp announced that a limited number of US citizens will be able to send and receive money on WhatsApp using the Novi wallet. It’s not sure where the future of this pilot now stands.

Diem solved some important issues: Levey

CEO Levey noted in his statement that the Diem solved some of the most important issues plaguing cryptocurrency:

“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.”

Levey also revealed that a senior US regulator informed the team that Diem was “the best-designed stablecoin project the US Government had seen” and that a Report on Stablecoins issued by the President’s Working Group on Financial Markets validated many of Diem’s core design features that addressed risks related to the issuance of a stablecoin and the risks associated with transferring stablecoins between parties.

“Even though Meta’s reputation ultimately sank it, the design of Diem was more transparent and regulator-friendly than a lot of existing stablecoins. But with nearly all of Libra founding team gone from Meta, the odds of Diem ever reemerging with the same level of backing it once had feel slim.” – The Verge

We remain confident in the idea of stablecoin: Levey

Despite the shutdown, CEO Levey said that the team remains “confident in the potential for a stablecoin operating on a blockchain designed like Diem’s to deliver the benefits that motivated the Diem Association from the beginning” and hopes that Silvergate takes this vision forward.

Echoing similar thoughts, David Marcus, the former Facebook executive who created Libra, tweeted:

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Facebook’s head of Novi digital wallet also chimed in with support for the ideas behind the projects:

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