Facebook spearheaded the formation of a high-profile consortium in 2019 with dreams of creating a payment infrastructure that had the company’s Libra cryptocurrency plans at its heart, but those assets have now been sold to a crypto-focused bank for $182 million. And with that, Facebook’s crypto ambitions that wanted to cover everything from messaging platforms like WhatsApp to Instagram NFTs and metaverse economy have to an abrupt end. However, given the intense scrutiny and criticism it faced ever since Mark Zuckerberg detailed his crypto vision and onboarded some big names, it is hardly surprising that the plans are shuttering down.
Facebook originally proposed in 2019, saying it sought to create a “financial infrastructure that empowers billions of people.” It sounds a little over-the-top on the philanthropic flavor because this is the same company that prioritized unhealthy engagement over teens’ mental health, its most vulnerable (and valuable) user demographic. Needless to say, regulators from both sides of the Atlantic ocean were skeptical about the whole idea. Influential voices in Washington raised concern over its impact on financial stability and risk scenarios like money laundering and criminal funding. In 2019, Zuckerberg passionately defended those plans in his testimony before Congress.
Following intense pressure from regulatory bodies, deep-pocket backers like eBay, Visa, PayPal, and MasterCard soon pulled out. A key talking point was that Facebook couldn’t solve its existing problems with poor user data management, especially with the Cambridge Analytica scandal exploding in its face just a year ago. On top of that, Facebook was already losing its battle against misinformation and the spread of hateful content — a problem that has only worsened since then — but was jumping into the world of finance and crypto with its own set of serious risks. Amidst the turmoil came the name change. Libra became Diem, and the Calibra wallet was changed to Novi. But that was all just a shaky start leading to an unceremonious end in 2022. What was once a cryptocurrency initiative of the global scale was shrunk to the U.S. soil.
Zuckerberg’s Prophecy Is Fulfilled
Libra cryptocurrency, once backed by a basket of currencies like the U.S. Dollar, Japanese Yen and Euro, was put on ice in 2020. Instead, the Diem cryptocurrency was soon tied to a stablecoin associated with U.S. Dollar at a 1:1 conversion rate. What’s a stablecoin? Well, it’s in the name. Unlike the financial rollercoaster of cryptocurrencies, stablecoins are tied to less volatile, more stable assets like a national currency. The Diem Association roped in a holding company called Silvergate Capital to issue the Diem stablecoin called USDP, or Pax Dollar. Late last year, trials of the Novi wallet with Pax Dollars were announced. The goal was to let users instantly send and receive funds without any processing fee involved.
But regulators were still hostile about the whole idea, and they made it pretty clear to all the parties involved with The Diem Association. Well, all that has finally come to an official halt. Silvergate Capital is buying Diem Group’s intellectual property and related assets for about $182 million. The ripples go far beyond, though. Facebook could’ve woven its crypto plans with the rumored NFT-linked future of Instagram. It is also unclear how the shuttering of the Diem project affects the testing of Novi wallet for exchanging funds via WhatsApp. But the shutdown of Diem is also linked to an unfortunately prophetic remark made by Zuckerberg before the House Financial Services Committee in 2019 during a hearing that lasted for about six hours: “I actually don’t know if libra is going to work.“
Sources: Silvergate, The Diem Association
