Diem, the latest incarnation of the stablecoin project launched by Facebook in 2019, just announced it is winding down and selling its assets to SilverGate Capital, a specialist in digital currencies, for US$ 182 million (EUR 161 million).
One may remember the uproar triggered by the Libra announcement three years ago. Facebook, which now calls itself Meta, was positioning itself as a global cryptocurrency provider, with the goal to use its new currency to facilitate payments worldwide. A the time of the initial announcement, the launch date was set at mid-2020.
This initial project brought on board Visa, Mastercard, Paypal, PayU, Stripe, eBay, Lyft, Uber, Iliad, Vodafone, Spotify, among other blue chip names. However, it was instantly seen by governments and the financial community as a declaration of war! Governments reaffirmed the issuance of money was a prerogative of their Central Bank, making it a sovereignty issue, while leading financial players were discouraged from participating in the Libra project, Paypal was the first to drop out, followed by Visa, Mastercard, eBay, Stripe and others as the project was not gaining steam.
Now that the story is over, analysts' comments become public: “Facebook completely screwed this up, from the very beginning. They ignored the regulatory issues as well as the political implications of what they were doing, and it cost them dearly,” says Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives, as reported by TechMonitor. “Facebook’s reputation, and its perceived inability to maintain the privacy of its users, has been the main problem here,” adds Professor Ganesh Viswanath-Natraj, assistant professor of finance at Warwick Business School, also in TechMonitor.
The positive effect of Diem was to force many players to take sides. The fact that Facebook was considering a worldwide stablecoin, a cryptocurrency backed by tangible external assets, led many central banks to consider they could not be left out from the digital payments area. All governments agreed on the idea that leaving the control of money issuance and transactions to an entity like Facebook was way too dangerous: no one would supervise money issuance and Facebook is not known for its privacy protection nor its ability to control illegal activities.
Libra, and then Diem, became a trigger to take sovereign digital currency projects out of the drawers of some eccentric researchers and turn them into real projects, endorsed and supported to the highest level. This led to the current worldwide moves to CBDCs, the Central Bank Digital Currencies. The emergence of CBDCs, the most advanced being in China and Sweden, among others, has forced governments and central banks to reflect on their role and on the pieces of power they can leave to multinational corporations. Money issuance is not one of them!