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Why Zuckerberg Won’t be Adding a Cryptocurrency to Meta’s Features
What do regulators distrust more, big tech or cryptocurrency? Facebook announced back in 2019 that it had plans to create a cryptocurrency and payment system. Regulators were immediately concerned, both in the U.S. and globally about the power, security, and reliability of the private network. This week the Meta-backed (Facebook) crypto affiliate sold its assets for $182 million and is winding down the initiative on regulators’ concerns.
The social media platforms’ stable currency and payment system project was originally called Libra. It changed the name to Diem over logo and copyright concerns. Diem was a permissioned blockchain-based stablecoin payment system. The vision also included a private currency which would have been a cryptocurrency. The launch was originally planned for 2020, but only basic experimental code had been released before this week’s sale.
“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” U.S. regulators said in a 2021 report. “These policy concerns are analogous to those traditionally associated with the mixing of banking and commerce, such as advantages in accessing credit or using data to market or restrict access to products,” the report said.
About the Seller and Buyer
The Diem Association was made up of partners from related businesses, including payment, technology, telecommunication, online marketplace, venture capital firms, and nonprofits. Among the original partners that dropped out under the intense scrutiny were Paypal (Nasdaq:PYPL) and Visa (NYSE:V). The currency and transactions would have been managed and cryptographically entrusted to Diem.
Diem’s technology was purchased this week by Silvergate Capital Corporation (NYSE:SI). Silvergate is a payment services company. According to its website it serves “…750 of the most recognized and well-funded digital currency exchanges, institutional investors, and software developers in fintech. As part of the purchase, Silvergate received development, deployment, and operations infrastructure, as well as tools for running a blockchain-based payment network for payments as well as cross-border wire transfers.
Diem’s CEO Stuart Levey said in a statement that the initiative made progress, but “it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead.” Levey said “…a senior regulator informed us that Diem was the best-designed stablecoin project the U.S. Government had seen.” The CEO added, “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 Diem sale is not in response to the recent weakness in cryptocurrency, it’s a response to a regulatory environment that has been critical of Libra the Diem since it originated.
While Facebook’s association with Diem has ended, Silvergate has spent almost $200 million to own the assets. Silvergate or another company could revive the project. It was the concerns over the breadth and power of Meta that prevented progress on the regulatory front. The Diem Association was considered more transparent and regulator-friendly than many existing stablecoins.
Managing Editor, Channelchek
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