Facebook’s crypto project Diem sold after pushback

Facebook-backed digital currency project Diem on Monday announced the liquidation and sale of $182 million of its technology, capping a years-long initiative that raised significant concern from regulators.

Facebook’s 2019 announcement of plans to devise a cryptocurrency and payment system raised immediate red flags for global financial officials, who voiced an outpouring of criticism about the security and reliability of a private network.

“The idea of ​​Facebook making a cryptocurrency was a bridge too far for regulators,” said analyst Rob Enderle of the Enderle Group.

“They’ve made it clear that they don’t trust Facebook with what they’re doing now, so I’m sure they’re not going to let it get into the money business.”

Diem Networks US CEO Stuart Levey said in a statement that the initiative moved forward, but “however, it was clear from our dialogue with federal regulators that the project could not move forward.”

“Over the next few weeks, the Diem Association and its subsidiaries expect to begin the liquidation process,” the association’s statement said.

The technology was purchased by Silvergate Capital Corporation in California, which is an option for crypto projects, and which put the sale price at $182 million.

Silvergate purchased development, implementation and operations infrastructure as well as tools to run a blockchain-based payment network for cross-border payments and bank transfers.

“As far as I can tell, Diem is dead,” Enderle said.

cryptocurrency boom
“As we undertook this effort, we actively sought input from governments and regulators around the world, and as a result, the project substantially evolved and improved,” the Diem association statement says.

Facebook developed the technology, initially called Libra, and later entrusted control of the project to an independent Geneva-based entity.

After the defection of several major partners including PayPal, Visa and Mastercard, the organization scaled back its ambitions, before changing its name to Diem in late 2020.

The so-called stable coin, a type of digital money linked to other types of assets, was never launched. It was unclear what will happen to related plans for Meta, the father of Facebook, to build a virtual wallet to store cryptocurrencies.

“The combination of a stablecoin issuer or wallet provider and a trading company could lead to an excessive concentration of economic power,” US regulators said in a 2021 report.

“These policy concerns are analogous to those traditionally associated with the banking and commerce mix, such as advantages in access to credit or the use of data to market or restrict access to products,” the report said.

Facebook, which rebranded as Meta in October, has faced criticism for its dominant position online, but it is not the only powerful organization interested in cryptocurrencies.

Creative Strategies analyst Carolina Milanesi wondered if Libra turned Diem was, all along, part of Facebook’s vision to be a platform for the metaverse.

“Cryptocurrency will enter the metaverse one way or another,” Milanesi said.

“Maybe that’s what Facebook is counting on and decided to leave the headache to someone else.”

People are already buying real estate in immersive virtual worlds known as the metaverse.

The European Central Bank formally launched a pilot project to create a “digital euro” in July, in response to the growing popularity of electronic payments and the rise of cryptocurrencies.

Central banks are also responding to increased demand for digital payment options as the use of cash continues to decline, a trend fueled by the pandemic and the desire to avoid contact.

“There is a lot of mistrust around cryptocurrencies, and many of us in the industry are convinced that it is one big Ponzi scheme,” Enderle said.

Diem’s ​​asset sale “is another red flag about crypto,” he added. (TheGuardian)