Facebook's cryptocurrency Diem is apparently on the verge of extinction. The Wall Street Journal, citing insiders, reported on Wednesday that the assets of the Diem Association set up by Facebook are to be sold.
The
Californian Silvergate Bank, which specializes in crypto and blockchain
start-ups, is considered a possible buyer. One of Facebook's biggest plans to
date could end up being one of its biggest flops.
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Facebook announced the cryptocurrency in June 2019, then called Libra. According to the plan, it should become the digital means of payment of the future and also be integrated into Facebook apps such as Instagram and WhatsApp. According to those responsible, Libra should above all enable those people to make cross-border transfers who have little access to traditional financial services, such as people in emerging and developing countries. But even in industrialized countries, all Facebook users should be able to pay with Libra almost overnight.
Unlike the well-known cryptocurrencies such as bitcoin, whose rates sometimes fluctuate greatly, Libra was intended as a so-called stablecoin: in order not to become a means of speculation, the value of the Libra should be linked to a basket of stable currencies such as the US dollar, the euro or the yen.
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In general, Facebook tried from the start not to advertise Libra as a Facebook currency. The further development and administration of the currency should take place democratically among the cooperation partners.
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In addition, nobody should be forced to use the wallet specially developed by Facebook called Calibra, which is like the digital wallet for Libra. Apart from Facebook, the 28 founding members of the Libra Association included companies such as Mastercard and Visa, Vodafone and Spotify, but also venture capitalists and NGOs.
The financial regulator does not play along
The plan didn't work out. Shortly after the presentation, government officials in Europe and the US made it clear that they didn't think much of the idea of the largest social network issuing its own currency: "We believe that no private company can claim monetary power that is the sovereignty of nations inherent in it," said Olaf Scholz, then the German finance minister.
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In the first year after the announcement of Libra, the initiators encountered regulatory hurdles around the world. At the end of 2019, some founding members such as PayPal, Mastercard and Vodafone left the Libra Association.
As a result, those responsible initially wanted to scale
back the ambitions of the project in order, among other things, to obtain
approval from the US banking supervisory authority. "From World Changer to
Another PayPal," was the headline in the Financial Times in April 2020
about the slimmed-down plans. But even that was not enough to convince the financial
regulator.
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At the end of 2020, Libra was finally renamed Diem. Instead of being tied to a basket of currencies, the diem should only be linked to the US dollar. In addition, the Silvergate Bank should act as a cooperation partner and possible publisher - the hope was, among other things, that an existing bank would more easily obtain the license to trade with the new cryptocurrency.
But as Bloomberg now reports, the US Federal Reserve apparently did not want to
grant approval to the Diem Association and Silvergate last year. The
combination of a stablecoin issuer (Silvergate) with a large company
(Facebook/Meta) could "lead to an excessive concentration of economic
power," according to a working paper from the agency.
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For the project, the decision apparently meant the final end. Silvergate is now rumored to be able to acquire the Diem Association's assets for around $200 million. Thus, the investors could be paid out at least partially, it is said. Silvergate, in turn, would take over Diem's developers and technical know-how.
Should it really come to that, two conclusions can
ultimately be drawn from it. First, that overly ambitious projects are not
always the best choice. Especially not if they also bear the name Facebook.
Despite all efforts, Facebook never managed to keep its own name away from
Libra or Diem. Both in public and with the supervisory authorities, the
cryptocurrency has always been a project from which the social network in
particular would have benefited. "A wolf in sheep's clothing is a wolf,
" Olaf Scholz said after a 2020 meeting of G7 finance ministers after the
currency changed its name.
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When Facebook announced Libra, the company was still grappling with the fallout from the Cambridge Analytica data breach scandal. Since then, Facebook has been and has been under particularly close scrutiny in Europe and the USA. The plan to issue a digital currency for its around 2.5 billion users, which also bypasses the existing financial system, could only fail in view of the skepticism towards Facebook. And at the latest after well-known partners from the classic financial sector such as Visa and Mastercard left the Libra Association, the initiators lost important support.
In fact , since last spring , Visa has made it possible to trade with the stablecoin USD Coin, which was launched in 2018, and to make transfers via USD Coin. Like the other stablecoins Tether and Paxos, USD Coin is linked to the US dollar – just as it should be with Diem. The fact that trading in these cryptocurrencies is now allowed underscores that the problem with Diem was not so much the idea itself, but actually more Facebook.
The digital money will come anyway
The second takeaway: The presumed demise of Diem is not the end of the vision to create a stable global cryptocurrency that can provide a cheap alternative to cross-border remittances. The crypto industry is subject to strict regulation in many countries and trading in crypto currencies is prohibited in some countries such as Turkey.
The European Central Bank has also been thinking about
launching a digital euro for a long time. It would not be a cryptocurrency or
a stablecoin in the sense of Diem, since a digital euro would still be central
bank money. But it could lead to the inhibition thresholds for digital
currencies falling further overall. And that, in turn, would certainly please
Facebook.
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