The digital currency project launched with great fanfare in 2019 by Meta, the new name of Facebook, is officially buried: the Diem association which carried it plans to sell its main assets and dismantle itself for lack of having been able to convince the regulators.
The social media giant had entered the arena of virtual currencies by creating what was first dubbed “Libra” in 2019. It was to offer a new method of payment outside of traditional banking circuits. Aware of regulators’ concerns about a currency managed by a private company, the American group then decided to entrust its management to an independent entity, based in Geneva (Switzerland), renamed Diem at the end of 2020.
This initiative was on the right track, but “it had become clear during our discussions with the American authorities that the project could not go any further”, justified the director general of the association, Stuart Levey, in a press release Monday, January 31.
“The idea of Facebook making a cryptocurrency had everyone panicking”, reacted for Agence France-Presse analyst Rob Enderle, of Enderle Group. “For regulators, this was going too far. They had made it clear that they did not trust Facebook” on this project. Diem will therefore sell its intellectual property rights and other assets for $182 million to the bank Silvergate Capital Corporation, which specializes in digital currencies.
Risks to the stability of financial markets
Originally, Facebook had imagined a new payment method that made it possible to buy goods or send money as easily and quickly as an instant message. But the project had, from its launch, provoked an outcry from central banks, regulators and political decision-makers alike. They worried pell-mell about the risks to the stability of the financial system, the fight against money laundering or the protection of personal data.
The fact that Facebook could seek to coin money, in the same way as central banks, had also aroused the indignation of many regulators. After the defection of several major partners such as PayPal, Visa and Mastercard, the organization quickly lowered its ambitions, before renaming itself Diem at the end of 2020.
“From the outset, Project Diem sought to harness the benefits of blockchain technology to design a better and more inclusive payment system”, Mr. Levey pointed out on Monday. The association managed to build and test a technology-based payments system that also runs bitcoin, which includes safeguards against its use by criminals, he said.
Takeover by a Californian bank
In parallel, “We have actively sought feedback from governments and regulators around the world, and the project has evolved and improved significantly as a result”, noted the official. But the talks eventually broke down and “the best way forward was to sell the assets of the Diem group”, concluded Mr. Levey. The association and its subsidiaries will begin to dismantle ” in the next weeks “, he specified.
Silvergate, the bank buying Diem’s assets, said in a separate statement that it will pay $50 million in cash and return approximately 1.2 million new shares to Diem for a total amount equivalent to $182 million. .
With Diem’s assets, the California-based bank particularly wants to improve the infrastructure it has already put in place for its own “stable coin”, a stable digital currency whose price is supposed to be at constant parity with the dollar. Silvergate plans to launch it later this year.