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After sending shockwaves through the financial industry, and becoming a nightmare scenario for central banks, Meta has sold the fruits of its stablecoin project to Silvergate Bank.
“Over the coming weeks, the Diem Association and its subsidiaries expect to begin the process of winding down, but we look forward to seeing the design choices, and the ideals of Diem thrive,” said Diem chief executive Stuart Levey in a statement announcing the end of its participation.
After three years, it appears that the game is up for the Meta-backed stablecoin project. Silvergate Capital Corporation has acquired the intellectual property and other technology assets from the Diem Group.
The assets that have been acquired by Silvergate include development, deployment and operations infrastructure and tools for running a blockchain-based payment network designed to facilitate payments for commerce and cross-border remittances.
The network, which has been operating in a pre-launch phase, was built over a two-year development cycle and included in the acquisition proprietary software elements critical to running a regulatory-compliant stablecoin network.
“In the digital asset industry, money moves across the globe around the clock,” said Alan Lane, Silvergate’s chief executive, in a statement. “Through conversations with our customers, 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.
Lane offers hope for the software in 2022, stating that it is the intention of the bank to launch a stablecoin in 2022, which will be enabled by the assets that the company has acquired.
A tragic tale
Diem, originally Libra, was announced by Meta, then called Facebook, in June 2019, and was to be developed in Geneva, Switzerland, where it would attempt to obtain a banking licence.
To oversee its development, it created an association, then called the Libra Association. This association included a variety of players, including Checkout.com, Spotify and Coinbase.
Originally, this also included the likes of Visa, Mastercard, eBay, PayPal, and Stripe, which were supposedly onboard as association members.
Yet, Visa chief, Alfred F. Kelly, clarified in July of that year that Visa had not joined after all.
Instead, it had signed a legally non-binding letter of intent; and that "no one has yet officially joined".
Kelly laid out that factors that would ultimately determine whether the card giant would join, including "the ability of the association to satisfy all the requisite regulatory requirements".
Dealing with the regulators is where the Diem Association proved to falter, although it could hardly have been said to have been welcomed with open arms by its regulatory overlords.
Despite Meta chief Mark Zuckerberg stating that the Diem stablecoin would not launch until it had met regulatory requirements, regulators remained highly sceptical and have maintained this stance throughout the process.
In October 2019, the G7 issued a warning that no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks had been addressed.
The EU, in particular, has also risen to the challenge of keeping Diem and other stablecoins at bay.
In September 2020, it proposed the Markets in Crypto-Assets (MiCA) regulation, which would impose tough rules on any stablecoin issuers that wished to operate in the European market.
This would trigger frustration among crypto and payments insiders in the single market, who accused the EU of focusing too much on Meta in their plans.
It remains to be seen whether the EU’s momentum to pass MiCA will wane in light of what seemed to be its most significant influence and focal point is now winding down.
“Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead,” said Levey.
He summarised: “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.”
In the coming days, VIXIO will be digging deeper into what happened with Diem, as well as its legacy on regulation and the payments market. If you are interested in sharing your point of view, contact jfranklin@vixio.com.
