Facebook’s digital currency Diem, formerly known as Libra, has faced a lot of controversy since it was announced a couple of years ago. Now it seems like it will never materialize beyond the headlines. Facebook/meta may have unprecedented distribution power, but that was not sufficient to realize this larger than life crypto project.
Looking back with the never-ending wisdom of hindsight, there were probably several factors that sealed Diem’s fate long before the would be able to materialize its vision. The larger-than-life launch announcement, with several prominent partners aboard quickly caught the eye of regulators, who immediately initiated investigations based on several concerns regarding both privacy, anti-money laundering, and financial stability.
This was followed by the withdrawal from several prominent partners from the project. Paypal was the first to drop out, quickly followed by Visa, Mastercard, Stripe and eBay. While the regulatory concerns raised by many central banks may have caused some bumps in the road for the project, the massive partner pullout may in retrospect haver been the first clear indication that Diem’s founders had bitten off more than they can chew.
Looking at which companies decided to leave, they were all payment companies, which means they have specific regulatory requirements dealing with fraud, money laundering and sanctions enforcement. Governments were starting to realize that Libra might make it hard to meet those requirements — and payment processors in particular would end up on the losing end of such an intervention.
As Senators Schatz and Brown wrote to three of the departing companies, “Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company.” The implication was clear: if Libra made things too easy for terrorists and money launderers, Visa, Mastercard and the others might end up taking the blame.
Regulators, incumbents and central banks was not the only ones skeptical to Facbook’s push into the crypto world. While some suggest that Facebook will be a catalyst for mainstream bitcoin and cryptocurrency adoption around the world, Diem could also disrupt existing cryptocurrencies. Cryptocurrency firms have been trying to build cross-border, digital currencies on the blockchain to disrupt traditional banking and payments for a decade, but nothing has caught on at the scale of traditional money yet. With Facebook’s ambitions, they surely are setting up a winner takes it all game for borderless payments.
The Financial Times Alphaville also raised doubts of the true motivation of the currency as well as its right to live. Arguing that Libra/Diem is nothing more than a brazen attempt to override national monetary sovereignty by creating a global-scale Federal Reserve equivalent — within which Facebook’s dominance is veiled by the cunning use of buzzwords like blockchain, DLT, decentralization, and cryptocurrency.
They received support from several sources in the Cryptocurrency community, stating that Libra is still a centralized platform and is still subject to censorship, monitoring, and control and that adding a consortium of global companies as validators does nothing to decentralize the system.
Originally, Libra was meant to be a digital token backed by a basket of currencies from around the world, but regulators quickly halted that concept. So, transitioned into a stablecoin, allegedly aiming to peg Diem tokens to the US dollar. At this point, whether or not it mattered or not that Diem is not a cryptocurrency by definition, is most likely semantics given the outcome of the project.
Even though Diem promised to maintain privacy for its users, not everyone is convinced. Given Facebook’s history of exploiting user data for monetization, it is safe to say that Facebook has some trust issues.
Another critic points out that given the alleged initial failure of Facebook Pay (that recently was discontinued in Europe), Facebook took a business area they’ve already failed at and added complexity.
In addition to external criticism and scrutiny, several signs have been indicating that Diem was never going to see the light of day. Facebook launched Novi as a digital wallet last year, utilizing another stablecoin in partnership with Coinbase as custodian. Shortly after, politicians were openly calling for Facebook to drop its cryptocurrency plans.
yet another nail in the coffin for the Diem project followed as Facebook’s executive in charge of cryptocurrency announced late last year that he would be leaving the company, following several other key executives that had played instrumental roles in Diem’s conception.
Meta has yet to confirm nor deny the rumors, but no matter the reason, all signs point towards a definitive end to Libra/Diem as Facebook’s grand venture into the world of cryptocurrency.