End of road for the Diem. 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 failing to convince the regulators. The social media giant had entered the virtual currency arena by creating “Libra” in 2019, which 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), and initially called Libra. This initiative was on the right track but “it had become obvious during our discussions with the American authorities that the project could not advance any further”, justified the director general of the association, Stuart Levey, in a press release Monday.
“The idea of Facebook making a cryptocurrency had everyone panicking,” analyst Rob Enderle of Enderle Group told AFP. “For the regulators, this went 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 company assets for $182 million to the bank Silvergate Capital Corporation, which specializes in digital currencies.
Opposition from banks, regulators and policy makers
Originally, Facebook envisioned a new payment method that would make buying goods or sending money as easy and quick as an instant message. But the project had, from its launch, raised 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 potentially 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,” Stuart Levey said on Monday. The association has managed to build and test a technology-based payments system that also runs bitcoin, which includes safeguards against its use by criminals, he said.
At the same time, “we have actively sought feedback from governments and regulators around the world, and the project has evolved and improved significantly as a result,” the official noted.
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But the discussions finally broke down and “the best way forward was to sell the assets of the Diem group”, concluded Stuart Levey. The association and its subsidiaries will begin to dismantle “in the coming weeks”, he said.
Diem’s assets bought by a California bank
“As far as I know, Diem is dead,” analyst Rob Enderle said. For him, Facebook’s reputation has reached a point “where they are going to have a very hard time doing something major”. For Carolina Milanesi, analyst in creative strategies, Meta has “decided to cut its losses and focus on what matters most to it”, the metaverse.
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. .
Indeed, with Diem’s assets, the California-based bank notably wants to improve the infrastructure it already has in place for its own “stablecoin” project, a stable digital currency whose price is supposed to be at constant parity with the dollar.
Silvergate, which plans to launch it later this year, “is committed to continuing to nurture the open source developer community that supports the technology,” said chief executive Alan Lane. “We are sure they will be enthusiastic about our vision,” he added.