Vale Diem: How Facebook’s ambitious stablecoin project came to an end

On Jan. 31, Meta, formerly known as Facebook, announced that it was pulling from its stablecoin project, Diem, formerly known as Libra. Intellectual property and other assets related to the operations of the Diem Payment Network were to be sold to Silvergate Capital Corporation, essentially meaning the end to Mark Zuckerberg and his corporations’ stablecoin aspirations, at least in their current shape. This also marks the end of a once-groundbreaking initiative that was revealed in 2019 with a promise to bring a global alternative to fiat money to Facebook’s 2-billion-strong user base. Here is how this plan went from the initial announcement to the shutdown.

Phase 1: The white paper

The news of Facebook launching its own digital currency came as a boost of optimism for the social media giant, whose brand in the late 2010s came to be associated with the lack of privacy and ethics, as well as disfunctional governance.

On June 18, 2019, the company released the white paper of its prospective global stablecoin under the name “Libra.” The prospective asset was to be backed by its own blockchain on the operational side and by a reserve of various assets (a basket of bank deposits and short-term government securities) on the financial level.

From the very beginning, Libra didn’t try to pretend to be a decentralized cryptocurrency — its governance mechanism was designed as a consortium (the “Libra Association”) including big-name companies such as Mastercard, PayPal, Visa, Stripe, eBay, Coinbase, Andreessen Horowitz, Uber and others. Facebook itself was “expected to maintain a leadership role.” The social media giant also planned to maintain its influence by running a wallet, Calibra.

The project’s original positioning was to serve not as a speculative asset but as a service payment tool. The minting of new tokens was tied to the process of buyout by “authorized resellers” from among the association’s members.

Initial reception

The white paper received mixed feedback from the crypto community. Some of the industry opinion leaders decried the compromises that Facebook’s project had made in terms of both decentralization and security. Bitcoin (BTC) advocate Andreas Antonopoulos, for example, denied Libra the status of cryptocurrency on the basis that it lacked any of crypto’s fundamental characteristics, such as being public, neutral, censorship-resistant and borderless.

Others, however, preferred to focus not on the actual project’s design but on Libra’s potential effects on global crypto adoption. “Some of the biggest companies in the world are starting to recognize the promise of cryptocurrency and see its potential for changing the way consumers and businesses interact globally,” said Tron founder and CEO Justin Sun at the time.

But perhaps the most important thing about the Libra project was its potential to sidestep both existing crypto and fiat currencies alike — not by the virtue of its technical or design superiority but solely due to the network effects of having over 2 billion users on board from day one.

As Ross Buckley, a digital economy expert and professor at the University of New South Wales, warned in his paper, “Libra is perhaps the ultimate example of something that is highly likely to move from ‘too small to care’ to ‘too big to fail’ in a very short period of time […] This is an alternative money.” Buckley surely wasn’t alone in his fears — the obviousness of Libra’s inherent power predestined the enormous pressure it would get from the regulators.

Phase 2: Regulatory pushback

It took the United States Senate less than a month to get Libra co-creator David Marcus to testify at a special hearing, where the Facebook executive was exposed to a fervent grilling. Notably, it was not only Senator Sherrod Brown but also his perpetual opponent Senator Pat Toomey, who bombarded Marcus with hard questions (although Toomey also called not to “strangle the baby in the crib”). The news about Facebook’s private currency hadn’t gone unnoticed even by the then-President Donald Trump, who reacted in his signature expressive manner:

If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.

The pushback was not confined to the United States. In September 2019, French Finance Minister Bruno Le Maire declared that his country and the whole of Europe wouldn’t tolerate Facebook’s new project because the “monetary sovereignty of states is at stake.” Weeks later, the Bank of England issued a warning that, for it to become legal in the United Kingdom, Libra would have to meet all the necessary standards of traditional banking compliance.

What followed these statements was the first wave of backouts from some of the Libra Association’s founding members. With such companies as PayPal, Visa, Mastercard, eBay and Mercado Pago quitting the project, its image took a huge hit.

But back then, Facebook speakers played down the significance of these events. “Of course, it’s not great news in the short term, but in a way it’s liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you’re on to something when so much pressure builds up,” wrote Marcus on Twitter.

By October 2019, five European nations — France, Germany, Italy, Spain and the Netherlands — had created an unofficial task force to prevent Libra’s launch in Europe. The pressure rose to the point when the CEO of the Netherlands’ largest bank, Ralph Hamers, publicly commented on the possibility to cut any operations with Facebook.

Phase 3: The rebranding that didn’t help

Facebook’s response to the pressure came in April 2020 in the form of “Libra 2.0.” The updated white paper introduced four key changes “to address regulatory concerns,” most notably of which was the switch from a single currency to a family of stablecoins, each backed by a single national currency (such as the U.S. dollar, euro and British pound).

As Brieanna Nicker from the Brookings Institute wrote at the time, “It also could be seen as a scaling back of Facebook’s ambitions, for the proposal is now more like a PayPal with a different technological backbone than a competitor to sovereign currencies.” Among other stated changes were the enhanced compliance framework and transition from a permissioned to permissionless blockchain within five years.

On Dec. 1, 2020, Facebook complemented the technical adjustments with a brand change: Libra became Diem, and Calibra became Novi. According to the company’s statement, this transition should have marked “a new day for the project.” The renaming came a week after the disclosure of a plan to launch the first USD-backed stablecoin.

At that time, the second version of the project was still officially opposed by the G7. Olaf Scholz, the current federal chancellor of Germany, who then served as a finance minister, called Diem “a wolf in sheep’s clothing,” stating that the name change hadn’t convinced the regulators.

Further pullbacks

The year 2021 didn’t bring good news for Diem. As the long-awaited launch has been delayed once again (by that time, Switzerland’s Financial Market Supervisory Authority still hadn’t granted grant Switzerland-based the Diem Association a payment license), on Feb. 23, the European Central Bank demanded from the European Union lawmakers a veto power to unilaterally block any private stablecoin projects when necessary.

In September 2021, The Washington Post reported on the ongoing attempts of Facebook’s top management to reach some compromise with U.S. regulators. But apparently, the negotiations stalled, as Marcus’ claim that Diem “has addressed every legitimate concern” caused public blowback from lawmakers.

The chairwoman of the House Financial Service Committee, Maxine Waters, retorted that rebranding had nothing to do with solving the major privacy, national security, consumer protection and monetary policy concerns. Top Republican member of the same committee, Representative Warren Davidson, sardonically mimicked Marcus’ blog post:

I’m not sure how Facebook and the Diem Association could have addressed ‘every legitimate concern’ whenever there’s overarching regulatory uncertainty that permeates many facets of the crypto space.

The last glimpse of hope sparked when, in a partnership with Binance, Facebook finally launched the pilot version of Novi Digital Wallet — a vital part of the planned Diem ecosystem. But it didn’t last longer than a few hours before a group of five senators wrote a joint letter to Zuckerberg with an unequivocal demand to “immediately discontinue” the project. In a casuistic response, the Diem Association tried to distance itself from Facebook.

On Dec. 1, Marcus, the formal head of Novi and the face of the Meta/Diem project, announced his resignation. Marcus, who had been working at Facebook since 2014, didn’t go into detail on the reasons for his decision, joining the list of Facebook’s key crypto figures who left in 2021, including fellow Diem co-founders Morgan Beller and Kevin Weil. With Marcus’ departure, it was hard to expect anything good in the upcoming 2022.

Is this the end for Diem?

Speaking to Cointelegraph immediately after the news of Facebook parting with Diem, Buckley, who had foreseen the regulatory reaction to the project back in 2019, shared his conviction that this is indeed the end of the stablecoin initiative: “I would be really surprised if it survives. It is a project designed to benefit from Facebook’s scale and reach and is now quite a scarred product.”

Buckley believes the company “profoundly mishandled the entire announcement” back in the day, overplaying its card as one of the biggest tech companies in the world. It surely wasn’t well-received by the wide range of regulators across the globe, as a digital currency with a user base of 2 billion was obviously far beyond the scope of a social media business:

Facebook took the classic tech company approach to this of surging ahead and then seeking forgiveness rather than seeking permission upfront. This may well work with telecoms […] but financial regulators expect to be treated with respect, as do governments with respect to their monetary sovereignty. The sharp resistance was in part because financial regulators and governments first learned of this from the media, not directly and well in advance, from Facebook.

Apart from Zuckerberg’s bravado that possibly played its role in Libra/Diem’s ultimate demise, this case could be seen as a hint to something more alarming. Facebook’s project of the world’s first global digital currency with an immediate mass adoption boost provoked instantaneous and concerted resistance from regulators.

What that means is that we can probably expect a response no less stiff and immediate should any other digital currency rise up to Diem’s adoption potential. As Buckley puts it, “The ability to mint the currency of the realm is a core element of sovereign capacity and has been for centuries.” And there’s no reason to believe that it won’t be defended ferociously. Hopefully, Diem’s example will serve as a reminder that the importance of regulatory negotiations should not be underestimated.


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Mark Zuckerberg’s stablecoin project Diem officially shuts down

Meta, formerly branded as Facebook, has officially announced the closure of its digital currency project Diem after years of major efforts to move forward with the initiative.

Announcing the news on Monday, Diem CEO Stuart Levey confirmed that Meta is selling intellectual property and other assets related to the Diem stablecoin project to its Silvergate Capital Corporation.

The Diem Association and its subsidiaries will start winding down operations “over the coming weeks,” Levey said. The association, however, is still confident that Diem’s ideals will continue to thrive even after Meta officially terminated its involvement in the project, the CEO noted:

“We remain confident in the potential for a stablecoin operating on a blockchain designed like Diem’s to deliver the benefits that motivated the Diem Association from the beginning. With today’s sale, Silvergate will be well-placed to take this vision forward.”

According to an official announcement by Silvergate, the company will purchase assets of Diem for the aggregate value of $182 million. “As part of integrating the acquired assets into Silvergate’s existing technology, Silvergate expects to incur approximately $30 million of additional costs in 2022,” the firm said.

Specifically, Silvergate Bank, a subsidiary of Silvergate and Meta’s stablecoin partner, will integrate its payment platform, the Silvergate Exchange Network, with Diem’s assets. The new combination will help the bank launch a “next-generation global payment system that is faster, easier to use and more cost-effective than existing solutions,” the announcement notes.

“We identified a need for a U.S. dollar-backed stablecoin that is regulated and highly scalable to further enable them to move money without barriers. It remains our intention to satisfy that need by launching a stablecoin in 2022,” Silvergate CEO Alan Lane said.

Meta officially introduced its digital currency project back in 2019, originally called Libra and including a foundation of top global companies like Mastercard, PayPal, Visa, eBay and others. The project received massive global regulatory pushback, with financial authorities expressing major concerns over tech giants potentially taking over too much financial power.

Despite major regulatory pressure, Meta attempted to roll out some of its services in the United States, with WhatsApp messenger testing payments with Meta’s Novi wallet in December 2021.

“In the United States, a senior regulator informed us that Diem was the best-designed stablecoin project the U.S. government had seen,” CEO Levey stated.

Related: PayPal stablecoin: What it could mean for payments

While the Diem Association is wrapping its stablecoin, some of its original members are moving forward with their own stablecoin plans. In January, ​​PayPal officially confirmed that it was “exploring a stablecoin” that could be called PayPal Coin.


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Paypal Confirms Plans to Launch its Platform Specific Stablecoin

American payments giant Paypal Holdings Inc has confirmed it is working on its own digital currency, which will take the form of a stablecoin.

The company shed more light on the plans after the developer Steve Moser uncovered a hidden code and images for a “PayPal Coin” in its app and shared it with Bloomberg.

The discovery Steve made shows that the Paypal coin will be backed by the US Dollar and may feature the Paypal logo with two horizontal slashes across it. The company did not deny the claims. According to Jose Fernandez da Ponte, a Senior Vice President of crypto and digital currencies at PayPal, the company is “exploring a stablecoin.” Jose also said that the company will work closely with relevant regulators “if and when [it] seek[s] to move forward.”

Stablecoins are a class of cryptocurrencies whose value is backed by fiat currencies like the US Dollar and the Euro. Their values do not fluctuate like other major digital assets like Bitcoin and Ethereum and are often used as the ‘fiat currency’ of the digital currency ecosystem. According to a Paypal spokesperson, the codes found on its iPhone App were leftovers from an internal hackathon by its blockchain, crypto, and digital currencies division. 

Creating digital currencies in the United States is often an affair that is guided by strict regulations. Many multinationals have attempted to float a stablecoin for use in the US, and Meta’s (formerly Facebook’s) Diem Project is the most prominent in recent times. Per the standing of American regulators and general criticism, the Meta’s Diem project is yet to see the light of day.

Other platforms, including the Telegram Open Network (TON), also faced strict sanctions from US regulators when it planned to launch the GRAM tokens. The social media platform sold the tokens as unregistered securities to American investors. The historical events from the US cast scepticism on Paypal’s endeavour. However, the company has a better chance of being granted approval to float the stablecoin seeing it is a financial service rendering outfit.

Image source: Shutterstock


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David Marcus, The Latest Top Executive To Leave Meta/ Facebook’s Crypto Project

Another one bites the dust. David Marcus stepped down as the head of Novi, Meta/ Facebook’s fintech division. The company’s first order of business was to create a cryptocurrency, but regulators around the world were not keen on the idea. After a few missteps and name changes, they finally released a wallet called Novi to little fanfare. The coin, now named Diem, is still in development and unreleased.

Related Reading | What Zuckerberg’s Meta Means for the Metaverse

David Marcus Says Goodbye

This is not the first time this happens, other top executives have abandoned Meta’s ship over the years. CNBC recapitulates:

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“Marcus’s departure follows that of other key executives who led Facebook’s ill-fated efforts in blockchain. Fellow project founder Morgan Beller left the company in September 2020 to go into venture capital. Kevin Weil, another one of the project founders, left in March to join Planet, a San Francisco company.”

Ex-Upwork CEO Stephane Kasriel will replace David Marcus, who in a Facebook post announcing his departure said:

“The one thing I’m the proudest of during my time here is the amazing kickass team we’ve assembled over the last three years. This is the most resilient, passionate, determined and talented group of humans I’ve ever worked with. I find comfort and confidence in knowing that they will continue to execute our important mission well under Stephane Kasriel’s leadership, and I can’t wait to witness this from the outside.”

Mark Zuckerberg responded to David Marcus: 

“I’ve learned so much working with you and I’m so grateful for everything you’ve done for this place. We wouldn’t have taken such a big swing at Diem without your leadership and I’m grateful you’ve made Meta a place where we make those big bets. You’ve built a great team, and while I’ll miss working with you, I’m looking forward to working with Stephane to lead the team going forward.”

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For his part, Stephane Kasriel said via Twitter:

“I am so honored for the opportunity to lead the awesome Novi team, and look forward to continuing to build products and services that allow more access for people and businesses to the financial system and digital economy.”

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What’s The Deal With Libra/Calibra/Novi/Diem?

After many iterations, Diem is now a stablecoin prototype. For its part Novi, the wallet, is only available in the United States and Guatemala. Facebook/Meta is running a pilot program to test the technology and gather data. They’re trying to steal the remittances market in Guatemala, which constitutes 14% of the county’s GDP. Using the Novi wallet, it’s almost free.

Nowadays, Facebook/Meta is using the Paxos stablecoin USDP as their standard. About this, David Marcus said via Twitter. “USDP is a well-designed stablecoin that’s been operating successfully for over three years and has important regulatory and consumer protection attributes.  I do want to be clear that our support for Diem hasn’t changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live. We care about interoperability and we want to do it right.”

Related Reading | Facebook Officials Claim Novi Received Approval From Major U.S. States

However, will Diem ever receive regulatory approval? For Facebook/Meta, that’s the Trillion-Dollar question. The company’s reputation regarding its handling of personal data is hampering the whole operation. And, well, governments around the world don’t seem to want a company like Facebook in charge of the money. And, well, the project’s been all over the place from the very beginning. No offense to David Marcus, who claims to be Diem’s “Co-creator & Board member.”

The project’s slogan is “To build a trusted and innovative financial network that empowers people and businesses around the world.” And, well, that’s Bitcoin. Why don’t they just plug in to the winning open network? Because Meta wants to be in control of the money supply. And that’s what government’s around the world are trying to prevent.

Featured Image: mohamed_hassan on Pixabay | Charts by TradingView


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Privacy or policy? Why Facebook’s crypto wallet Novi is facing resistance

The stablecoin market has grown exponentially over the last few months due to the numerous advantages blockchain-based versions of fiat currencies have. But, when Facebook launched its cryptocurrency wallet Novi using Paxos’ stablecoin, some United States senators were quick to oppose it. Are they concerned about user data or monetary sovereignty?

The social media giant which, according to its Q2 2021 report, has 2.9 billion monthly active users across all of its platforms, tapped Coinbase and Paxos for its Novi digital wallet project that kicked off its testing phase in the U.S. and Guatemala on Oct. 19.

The pilot program allows users in both countries to download the Novi digital wallet app for iOS or Android devices and fund their accounts with a debit card. The wallet allows them to send and receive Pax dollars (USDP), which are dollar-pegged stablecoins issued by Paxos.

Novi customer funds will be custodied with Coinbase, which manages over $180 billion in assets. A Facebook spokesperson told Cointelegraph that the pilot phase allows the company to evaluate the wallet’s core functions and showcase operational capabilities. 

Additionally, the spokesperson said that the company hasn’t dropped support for the permissionless payment system it’s developing called the Diem network and is, instead, waiting for a green light from Washington. After receiving regulatory approval, Facebook plans to launch Novi with Diem.

Bringing stablecoins to the masses

Facebook’s digital wallet Novi and its use of a stablecoin custodied by a central entity may go against the cryptocurrency space’s ethos of decentralization and self-sovereignty but could help move blockchain technology to the back-end, potentially allowing billions of people to use it every day without noticing.

Speaking to Cointelegraph, Justin Hartzman, CEO of Toronto-based cryptocurrency exchange CoinSmart, said he believes the launch of Novi is “definitely a major step towards mainstream adoption” of cryptocurrencies, given Facebook’s massive user base.

Hartzman said that on the negative side of Novi’s launch, users won’t be holding their own coins directly, but will instead “keep track of your USDP balances while they are held in custody by Coinbase.”

Sergey Zhdanov, chief operating officer of United Kingdom-based cryptocurrency exchange EXMO, echoed Hartzman’s sentiment on the potential advantages of the Novi project, pointing out that stablecoins today are the “main bridge between traditional finance and the cryptocurrency market.” Zhdanov told Cointelegraph:

“Not to mention the fact that stablecoins are often the only possible option for receiving and sending money in countries with an undeveloped banking system.”

Zhdanov said that stablecoins can become the foundation for “faster and cheaper payments, making it easier for people to pay for goods or store their money.” This will only happen, however, if stablecoins are not “stifled by overly strong regulation.”

Regulators have notably cracked down on Facebook’s original cryptocurrency ambitions, which involved launching a coin backed by a basket of fiat currencies. The project ended up changing course over a year after it was originally announced, complete with a rebrand from Libra to Diem.

Regulatory woes

Soon after Facebook launched its Novi wallet pilot, five senators called for the immediate closure of the cryptocurrency wallet. In a letter sent to Mark Zuckerberg, Facebook’s founder and CEO, the five senators wrote that given the “scope of the scandals surrounding” the company, they were voicing their “strongest opposition to Facebook’s revived effort to launch a cryptocurrency and digital wallet.”

The letter came from the office of Senator Brian Schatz and was co-signed by senators Tina Smith, Richard Blumenthal, Sherrod Brown — who also chairs the Banking Committee — and Elizabeth Warren. 

In response, Diem told regulators it’s an independent organization, stating, “Diem is not Facebook. We are an independent organization, and Facebook’s Novi is just one of more than two dozen members of the Diem Association. Novi’s pilot with Paxos is unrelated to Diem.”

To Zhdanov, Facebook may not have any other choice but to “accept the request and disconnect the wallet.” He said that global regulators cracked down on Libra because they saw it as a threat to their monetary sovereignty, adding:

“It would be strange to imagine that the United States would easily agree to redirect huge cash flows to a private company with a huge audience.”

The CEO concluded that he hopes large industry players will be “able to influence what is happening and will not let the largest part of the cryptocurrency market die,” referring to stablecoins.

To CoinSmart’s Hartzman, regulators have been pressuring Facebook because of the company’s past, and not because of its involvement with the cryptocurrency sector or stablecoins. To him, even if Facebook caves to the pressure and shelves Novi, it may not have a major effect on the wider crypto market.

Shift to the metaverse

Speaking to Cointelegraph, CEO of trading platform Kay Khemani pointed to something bigger than Facebook’s plans initially revealed: the company’s rebrand to focus not on social media, but the metaverse.

The metaverse is loosely defined, but it’s often seen as a digital reality combining aspects of social media, augmented reality and online gaming and cryptocurrencies together. Sources at Facebook have been claiming the company is getting ready to announce a rebrand meant to reflect its shift in priorities to the metaverse.

As The Verge reported, the move is meant to signal the company’s focus on being known for something other than social media. Mark Zuckerberg has said the metaverse will be a “big focus” for Facebook as he believes it “is just going to be a big part of the next chapter for the way that the internet evolves after the mobile internet.”

Khemani said that Facebook is an innovator that “changes paradigms” and that it could corner the market by owning both premier virtual reality hardware producer Oculus and having the largest social media user base out there.

These two things combined could make Facebook a major player in the metaverse, one that U.S. regulators may be more lenient on to “prevent the social media conglomerate from potentially relocating its operations outside the USA.” That move, Khemani said, would trigger an exodus from tech giants that would “undoubtedly harm the U.S. economy.”

As it stands, Facebook appears to be moving forward with both its cryptocurrency wallet Novi and its stablecoin project Diem. If the company manages to make the use of blockchain technology imperceptible, it could launch a cryptocurrency application that would be adopted by billions.

As Facebook is already working with Coinbase and Paxos, it wouldn’t be a stretch to believe Novi could, in the future, offer its users seamless access to other cryptocurrencies including Bitcoin (BTC). Veteran crypto users may nevertheless choose to stay away, as controlling their private keys is paramount.


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Facebook ‘definitely looking’ at NFTs, says exec

As Facebook now finalizes the development of its proprietary cryptocurrency wallet Novi, the social media giant could soon be supporting nonfungible tokens (NFTs).

David Marcus, head of Facebook Financial and co-creator of Facebook-initiated cryptocurrency Diem, said Wednesday that the firm is “definitely looking” at possible ways to get involved in the NFT industry.

Facebook is considering multiple options to introduce NFT features as they find themselves in a “really good position to do so,” Marcus said in a Bloomberg Television interview. “When you have a good crypto wallet like Novi will be, you also have to think about how to help consumers support NFTs,” he added.

Marcus said that the Novi crypto wallet is now “ready to launch” after a couple of years of development, but Facebook has decided to put its launch on hold until the firm gets approval from regulators to move forward with Diem. Facebook began work on the digital currency two years ago, initially under the name Libra. The social media giant would still consider launching Novi without Diem “as a last resort,” Marcus said, but he believes that both are necessary for Diem to be a success.

Related: Facebook’s David Marcus calls for ‘fair shot’ at crypto payments

Facebook released a white paper for its then-called Libra in June 2019, originally planning to peg the digital currency to several fiat currencies including the United States dollar, the euro, the Japanese yen, the British pound and the Singapore dollar. Due to global regulatory pushback, the Libra Association has been struggling to launch its stablecoin ever since, eventually rebranding to the Diem Association and redesigning the digital currency to be pegged solely to the U.S. dollar and be regulated under the U.S. government.