Meta’s former stablecoin project, Diem, which was initially launched as Libra in 2019, came to an end due to significant political and regulatory challenges in the US, according to Diem’s co-founder, David Marcus.
Marcus took to social media to share insights into the obstacles that led to the termination of the project, highlighting the heavy influence of political factors in the decision-making process.
Regulatory and political pushback
Originally conceived as a global payment network supported by a basket of international currencies, Libra gained early support from major financial institutions such as Visa, MasterCard, and PayPal. However, the project faced immediate scrutiny from US lawmakers and regulators, who expressed concerns about its potential impact on monetary sovereignty, financial stability, and Meta’s overall influence in the global financial ecosystem.
Shortly after its announcement, Meta executives, including Marcus, appeared before Congress to address these concerns. Lawmakers raised issues regarding risks to sovereign currencies and pointed to Meta’s track record of privacy controversies as additional reasons for public distrust. These apprehensions led to the withdrawal of key early supporters and prompted Meta to rebrand the project as Diem in 2020.
Despite attempts to scale back its ambitions, such as shifting focus to a US dollar-backed stablecoin and moving operations to the US, regulatory hurdles persisted. Marcus disclosed that initial discussions with Federal Reserve officials hinted at the possibility of limited approval, but changing political landscapes made progress challenging.
Marcus stated, “There was no legal or regulatory angle left for the government or regulators to kill the project. It was 100% a political kill — one that was executed through intimidation of captive banking institutions.”
Attempts to pivot and conclusion
The Diem Association collaborated with Silvergate Capital to introduce a dollar-denominated stablecoin. However, in late 2021, a group of US Senators urged Meta to cease its Novi digital wallet pilot program, citing unresolved concerns related to regulation and consumer protection.
In January 2022, the Diem Association announced the sale of its assets to Silvergate, marking the end of the project. Stuart Levey, who was the CEO of Diem at the time, attributed the decision to the insurmountable regulatory challenges despite substantial efforts to tackle compliance and security issues.
Following the closure of Diem, several team members transitioned to other blockchain ventures, such as Aptos and Sui. Marcus shifted his focus to Lightspark, a company exploring the utilization of Bitcoin’s Lightning Network for payments.
Reflecting on the journey of Diem, Marcus underscored the significance of neutrality and decentralization in the development of future blockchain projects. The saga of the firm underscores the intricate relationship between innovation, policy, and regulation in the cryptocurrency industry.
In conclusion, the rise and fall of Diem serve as a cautionary tale for blockchain projects navigating the complex landscape of politics and regulation. The integration of technology and finance continues to face challenges, highlighting the need for collaboration and adaptability in the ever-evolving realm of digital currencies.