Fb wished to revolutionize finance with a world digital forex — then got here the regulators.
First proposed in June 2019 with the title libra, the token was initially meant to be a common forex tied to a basket of sovereign currencies such because the U.S. greenback and the euro.
However after dealing with robust opposition from regulators all over the world, the group overseeing the mission misplaced main backers together with Visa and Mastercard. The group finally watered down its plans, choosing a number of “stablecoins” backed one-to-one by completely different government-backed currencies, in addition to one multi-currency coin.
Now often called diem, the Fb-backed digital coin is predicted to launch later this yr, albeit in a way more restricted kind. When it lastly arrives, diem will not include the identical fanfare and controversy of the unique thought envisioned by the social media big practically two years in the past.
The Diem Affiliation, the Switzerland-based nonprofit which oversees diem’s improvement, is aiming to launch a pilot with a single stablecoin pegged to the U.S. greenback in 2021, in accordance with an individual acquainted with the matter.
The individual, who most well-liked to stay nameless as the small print have not but been made public, mentioned this pilot shall be small in scale, focusing largely on transactions between particular person customers. There may additionally be an possibility for customers to purchase items and purchases, the individual added. Nonetheless, there isn’t a confirmed date for the launch and timing might due to this fact change.
“It is actually drifted off the radar in a method that is fairly putting,” Michael Casey, chief content material officer of the cryptocurrency publication CoinDesk and a former monetary journalist, instructed CNBC.
Diem was met with intense scrutiny when it was first launched. Given Fb’s vast attain — it had 2.8 billion month-to-month energetic customers within the fourth quarter of 2020 — central bankers and politicians feared the currency could threaten monetary stability and potentially enable money laundering. Facebook’s involvement also meant that there were concerns over how it would protect users’ privacy.
“It was such a stunning challenge to the international order, in that the backlash was just really powerful,” Casey said.
One big concern, according to Casey, was that diem posed a threat to the dominance of the U.S. dollar. Two months after Facebook unveiled libra, former Bank of England Governor Mark Carney proposed a new digital currency based on a global basket of goods that could diminish the dollar’s status as the world’s reserve currency.
Diem’s technology has “changed dramatically over the past year and a half from a naive blockchain to a very sophisticated blockchain that you can see is trying to answer some of the questions that regulators had,” said Ran Goldi, CEO of Digital Assets Group, which is building infrastructure to let merchants accept diem as a method of payment.
“I think it will get past the gates this year,” said Michael Gronager, CEO of blockchain analysis firm Chainalysis. “It would be a missed opportunity if not.”
“At the same time,” Gronager added, “it’s one of multiple initiatives happening and it’s similar to Tesla buying $1.5 billion in crypto. This is just part of a big movement, not a new movement.
Indeed, diem — or libra — may have been the big crypto story of 2019. But bitcoin and cryptocurrencies have gathered significant momentum over the past year, with bitcoin recently surging to a new all-time high above $60,000 and major firms like Tesla and Square making big bets on the digital coin. Meanwhile, crypto exchange Coinbase went public in a landmark direct listing on the Nasdaq.
What’s next for diem?
The Diem Association has lost numerous members and executives almost two years on from its initial unveiling.
Visa, Mastercard and Stripe were some of the earliest companies to withdraw from the association. That was followed by an exodus of other members, including PayPal, eBay and Vodafone. Meanwhile, the project has also suffered a number of notable departures, from Kevin Weil, the head of Facebook’s planned digital wallet Novi, to Dante Disparte, Diem’s public affairs chief.
At the same time, Diem has gone through a complete makeover, rebranding from Libra earlier this year and beefing up its leadership team with big hires like CEO Stuart Levey, who was formerly HSBC’s chief legal officer.
Diem is now in talks with Swiss financial regulators to secure a payment license, a crucial step that would place the organization further along the path toward getting its digital currency project off the ground.
“A big step of our dialogue with regulators has been a phased approach to launch,” Christian Catalini, Diem’s chief economist, told CNBC’s Joumanna Bercetche last month.
“We are going to be phasing in different functionalities and use cases, applications in different areas,” he said, adding that members — both large and small — would have to undergo rigorous anti-money laundering checks.
“Once we get the green light, we will start experimenting with a small number of users and a small number of players,” Catalini said. The goal would be to ensure that the technology and reserve system operate as expected, he added.
And though it’s starting with a limited pilot, the group plans to eventually bring in merchants and other partners. It is staying tight-lipped on which ones, for now.
“What you get with an institution like Facebook backing a stablecoin is much better distribution,” Gronager said. “You can put it into apps, add it to a lot other places and I think that will be strong.”
“We’ll see when it launches how it’s going to play out but already today a lot of the interest in crypto is also speculative,” he added. “It will basically enable more people to easily get into crypto.”
But this also brings with it concerns around users’ data, an issue that has clouded the project due to Facebook’s history of privacy scandals. For its part, Diem says it takes privacy “very seriously.”
“Diem itself will not have private information about the customers,” said Catalini. “Some of our members have made commitments with regards to data separation between social and financial data.”
Nevertheless, one thing diem has achieved is a global race among central banks to figure out their own digital money strategy. The People’s Bank of China is leading the way, trialing a digital version of the yuan in a number of cities, while Britain’s central bank is exploring whether or not to issue its own digital currency. And some experts say we shouldn’t count out diem just yet.
“The story of digital money in the 2020s will be the growth of tokenized money,” a team of Citi analysts led by Ronit Ghose, global head of banks research, wrote in a research note last week.
“Central banks … and Big Tech … alongside wider adoption of cryptocurrency, are building new payment formats and rails,” Citi analysts wrote. “Stablecoins such as Diem could benefit from the huge network effects of their Big Tech sponsors.”