Facebook’s Diem is launched as a US stablecoin
Facebook was the first of the global tech giants to begin working on its own cryptocurrency, with the earliest reports of this initiative coming in 2017. This had been confirmed by May 2019, and the project was known as ‘GlobalCoin’ or ‘Facebook Coin’ at the time, with more than 50 engineers working on it. A formal announcement came in June 2019, when it was also announced that this token would be called ‘Libra’, and it was planned for release in 2020. However, the project ran into regulatory issues, and many of the companies that had signed up to the Libra Association, including PayPal, eBay, Mastercard, Visa, Stripe, and Mercado Page, left the project in October 2019. All of these issues led to Facebook rebranding Libra as ‘Diem’ in November 2020 and also turning it into a stablecoin i.e. crypto that is backed by the US dollar, rather than an open cryptocurrency. The Diem Association was reported to have 27 members in December 2020, and it has finally formally announced that it will be launching as a US stablecoin.
This is quite a comedown for the project, which was initially going to be pegged to a weighted basket of international currencies. However, it has been extremely difficult for Facebook to launch anything over the last few years anywhere in the world, as it has immediately been met with suspicion and skepticism from regulators and the general public. This was the case with Diem as well, as regulators in Europe, as well as the United States, were not convinced by the original plans, and all the negative publicity around Libra was the reason why Facebook decided to rebrand it as Diem. The Diem Association has also stated that it is moving its headquarters from Switzerland to the US in preparation for its launch, and would be withdrawing its application with the Swiss authorities for a payment system license in the country. Diem is now working to register as a money services business with the Financial Crimes Enforcement Network (FinCEN), which is a division of the US Department of Treasury.
While this project has seen several setbacks, it is notable that there are still 25 or so companies that make up the Diem Association, with the likes of Uber, Lyft, Shopify, and Coinbase all still on board. The venture capital firms Thrive Capital, Andreessen Horowitz, and Breakthrough Initiatives are still all a part of this project as well. Diem’s initial aim, which was to be a global currency that could help unbanked populations all around the world, has been scaled back significantly as a result of all the concerns so far, and it is now only going to target the US market for its launch, as it aims to get a foothold in the crypto and digital currencies sector.
Its launch as a stablecoin is also significant, as this move has been made to ensure the stability of the asset and its prices. It is being launched with a 1:1 ratio, meaning that the price of Diem will be $1 at launch. It still remains to be seen if all the concerns around Libra still exist with Diem, with issues around privacy, consumer protection, money laundering, and financial stability all being raised by regulators all around the world. However, Diem would be the first among major crypto tokens to be based on a major currency rather than using blockchain networks to be decentralized. This means that it will still be a centralized network, in complete opposition to the likes of Bitcoin and Ethereum, which are completely decentralized. This has been one of the biggest attractions of these crypto tokens, and therefore it will be very interesting to see if Diem manages to gain any popularity. There is not much information available at the moment around whether Diem will be open to mining, and how people can earn the token, but we are sure to get more information as we move closer to a launch date for this token. One thing is certain though – Facebook has been attempting to get into the crypto space for a long time now, and thus it will not give up on the Diem project until it is absolutely unviable.