Meta is effectively pulling the plug on its Diem stablecoin project amid plans to sell off its assets, bringing to an end a bruising dispute with regulators that it never looked like winning.
Bloomberg reported that Meta is looking to sell off Diem’s assets in an attempt to return capital to the project’s investors and relocate its team of engineers, while salvaging whatever valuable assets it can. Diem is coming to its end after years of battling regulatory opposition. Since the project was first announced, regulators have rejected the idea of a stablecoin being built and controlled by Meta.
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Concerns were raised about the impact it could have on the global economy, as Meta would be responsible for a digital currency in direct competition with fiat currencies, and no government would willingly accept the creation of a digital currency that could undermine its authority.
Regulatory concern
If Diem was to be introduced, Meta could potentially become available to the 2 billion users it has access to across all its platforms. Regulators also raised doubts about Meta’s ability to enforce anti-money laundering rules, required to prevent Diem from being used for illegal activities.
Since its inception, Diem has seen its support dwindle. Initially called Libra when the project was started in 2019, its name was changed after the likes of Visa, Mastercard, and PayPal had backed away due to the regulatory pushback it received when it was announced.
The end of Diem was imminent and inevitable following the departure of David Marcus, who also oversaw the launch of Meta’s Novi digital wallet, late in 2021. Marcus was the driving force of the Diem project, but dealing with regulators forced him to review the release strategies of both Diem and Novi. Despite being committed to launching both products at the same time, he conceded to releasing Novi without Diem and using a different stablecoin instead provided by Paxos. This change in strategy late last year was a sign that Diem would not be able to go forward, at least not in its current iteration.
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By GlobalDataLast nail in the coffin
The last nail in the coffin was losing Silvergate Bank, the intended banking partner and issuer of the Diem USD stablecoin that was thwarted by the US Federal Reserve’s lack of support.
Cryptocurrencies are a disruptive technology that have the potential to challenge central banks by allowing companies and individuals to create their own digital currencies. Despite the efforts of some platforms such as PayPal and Crypto.com to use the technology as a means of payment, cryptocurrencies are mainly being used as speculative assets on crypto exchange platforms.
But initiatives such as Diem highlight the need for regulatory frameworks on the cryptocurrency and blockchain sector. Governments must actively start working on regulations to oversee the sector and ensure that they protect the economy and consumers.
This was written by Chris Dinga, Payments Analyst, GlobalData
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