It’s been a brutal three years for the Diem Association – the consortium funded by Meta/Facebook and others – that sought to originally launch a cryptocurrency called Libra in 2019. The Association tabled that idea and reconfigured the project to be a dollar-backed stablecoin called Diem. That pivot was necessary after Facebook CEO Mark Zuckerberg was called before Congress and defended the original Libra project. However, Zuckerberg’s testimony didn’t help his situation and regulatory pressure mounted.
Since then the project has had its ups and downs – more downs than ups if we’re being honest – including the departure last year of its high-profile co-founder David Marcus. As a result of all those challenges, Bloomberg reported Wednesday that Meta/Facebook is looking to finally sell its stake in the Diem Association. It doesn’t take a genius to realize that without the backing of Meta, Diem is all but dead.
In actuality, it’s been dead for months despite marketing and publicity pablum to the contrary, existing only as a zombie project that would never get past regulatory ridicule. Last fall, when then-Facebook selected Coinbase as its custodial partner for Zuckerberg’s Novi digital wallet, that partnership was roundly rebuffed by politicos. The backlash from lawmakers was swift and direct, as noted in a joint letter to Zuckerberg from six senators who called on Facebook to abandon Novi and pledge not to bring the Diem stablecoin to market.
“Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape—not only for Diem specifically, but also for stablecoins in general,” the senators wrote in their letter to Zuckerberg. “Unfortunately, Facebook’s decision to pursue a digital currency and payments network is just one more example of the company ‘moving fast and breaking things’ (and in too many cases, misleading Congress in order to do so). Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.”
Despite this seeming death knell from key policy makers, the Bloomberg article states that the Diem association struck an arrangement with Silvergate Capital Corp. bank to issue Diem, but resistance from the U.S. Federal Reserve dealt that effort a truly fatal blow.
The article went on to state that after a lengthy back-and-forth between the Diem advocates and regulators, Fed officials finally told Silvergate that the agency was uneasy with the plan and couldn’t assure the bank that it would allow the stablecoin to be issued. So without approval, the Diem project had no coin – leading up to Meta’s reported decision to sell its stake in Diem. Valuations of the Diem assets are unclear and people close to the situation told Bloomberg that there was no guarantee Diem will find a buyer. We’ll have to wait and see how this ongoing saga unfolds.