Stablecoin targets on hold: Here’s why

“Bank the Unbanked” was the motto of the Diem stablecoin project. The consortium was founded in 2019 by Facebook (today Meta), supported by recognized companies such as Andreessen Horowitz and in the past Mastercard and Visa. On the website and at conferences, it was always said that Diem wanted his project to give everyone who previously did not have a bank account affordable access to financing.

Diem regularly made headlines with this idea of ​​a stablecoin issued by private companies. According to internal reports from Bloomberg, the end of the stablecoin, once marketed as “Facebook Coin,” appears to have been decided.

What happened?

Meta did not respond to questions about the reasons for this step at the time of publication. Despite this, Bloomberg said it would begin a liquidation of the company’s assets and that Meta would seek new developer jobs. Meta owns two-thirds of the shares, while the other members of the consortium own one-third.

Looking back at the events of the past year, the storm has been brewing since November 2021 at the latest. It is true that the project has not been under a lucky star since it was founded and announced.

However, three reasons in particular for Diem’s ​​failure can now be named:

1. European regulators against the project

As soon as the white paper was published in June 2019, there was an outcry from European regulators. At the time, Diem was still called Libra, was based in Switzerland, and had just submitted an application to the Financial Market Authority to operate a payment system. Critics saw the danger in one thing above all:

• increasing risk of promoting black markets, money laundering and terrorism,
• the threat to data security,
• an attack on the role of the European Central Bank and
• the threat to financial market stability, particularly in times of crisis.

At the time, Zuckerberg emphasized a willingness to cooperate. Still, companies like Mastercard and Visa abandoned the project. Furthermore, the criticism did not subside after the publication of the updated Whitepaper 2.0. At an online meeting of finance ministers and central bank governors in December 2020, Olaf Scholz, current chancellor and then finance minister, said: “A wolf in sheep’s clothing is a wolf.”

Eventually, Libra was renamed Diem. The project and consortium then turned their backs on Europe and moved to the US, hoping to gain more support here.

2. US authorities also criticize

In the US, Diem probably ultimately failed because of the Federal Reserve. After moving to the United States, the Diem Association initially sealed the project properly. The original Diem stablecoin based on a weighted basket of currencies (EUR, USD, British Pound, Yen, and RMB) eventually became the Diem USD stablecoin.

For this, Diem gained Silvergate, a commercial bank for crypto and businesses, as the issuer. However, the Fed dealt a “final blow” to this partnership by threatening the bank, he said. That was the final whistle.

3. Original Developers: Inside Out

In 2021, the first founding developers left the project. After idea generator and former NOVI director David Marcus announced his resignation at the end of the year in November, the latter seemed to have lost his conviction.

However, an initially hopeful NOVI pilot project started in Latin America. Despite this, no project involving the US dollar was carried out. Instead, there were rumors that NOVI was collaborating with the Paxos stablecoin.

And yet, regardless of what you think of Meta or the idea of ​​a private global company wanting to launch a global cryptocurrency, Diem should be given credit for driving the cryptocurrency debate around the world. This gave rise to some opponents, but also some supporters.