Facebook is doing a great job at spurring regulatory clarity in the industry — alas, in the direction of “ban this and jail everyone involved.”
— Ben Munster, June 2019 [Decrypt]
Diem was the rebranding of Facebook’s Libra cryptocurrency project, which you’ll recall I wrote a book about.
When Libra launched in June 2019, financial regulators around the world took one look, and told Facebook: no, and hell no. When a regulator uses the word “systemic,” that’s the sound of the air-raid sirens going off.
The US government crushed Libra like a bug in July 2019 when it became clear that Facebook was not only messing with the money, but doing so with utter incompetence.
The project wheezed along for a couple of years, not doing anything. The founders all left Facebook — zombie death march projects get wearying.
Bloomberg this morning tells how Diem is shutting up shop — it’s “in discussions with investment bankers about how best to sell its intellectual property.” [Bloomberg]
Silvergate rescue plan fails
The US government was just absolutely not going to let Facebook do a private currency, backed by a basket mostly of foreign currencies, at worldwide scale.
So Diem wound its plans back to doing just a US dollar stablecoin. The point seems to have been for Facebook to be able to do something — anything — in this area.
Regulatory discourse around stablecoins has been leaning for a while towards requiring stablecoin issuers to be banks. The proposed STABLE Act, put forward in late 2020, didn’t get put into law — but the thinking in it has been influential.
So in May 2021, Diem hooked up with Silvergate Bank — the bankers to most of cryptocurrency in the US. Diem would run the network, and the reserve would live at Silvergate. This shouldn’t have been outrageous, as Silvergate already holds the reserves for Pax Dollars and Gemini Dollars.
But regulators still fundamentally didn’t want to let Facebook anywhere near the money, because of the ample evidence from the Libra saga that the company would be arrogant idiots if they were let near the money. Per Bloomberg:
After a lengthy back-and-forth between the Diem advocates and regulators, Fed officials finally told Silvergate last summer that the agency was uneasy with the plan and couldn’t assure the bank that it would allow that activity, the people said.
Silvergate’s stock price took a hit over this, as the Diem deal had been a major part of their plans going forward.
By August 2021, Facebook was actively looking into backing their Novi cryptocurrency wallet — created for Libra — with a different stablecoin.
With the Silvergate plan being rejected, Diem assumed it was just persona non grata, and it was time to finally give up.
Cutting Diem up for parts
The intellectual property will consist of some trademarks, a website and the open-source code for a mediocre permissioned blockchain and various helper projects.
Diem hopes to return what little money there is to its investors — apparently Diem is owned one-third by Facebook, and the rest by other members of the consortium.
They also want to “find a new home for the engineers who developed the technology.” Layoff time at Facebook’s Novi Financial?
Diem declined to comment to Bloomberg. Michael Crittenden from Diem told The Verge that the Bloomberg story had “some factual errors,” but wouldn’t say what they were. [The Verge]
Update, 27 January: The Wall Street Journal reports that Silvergate Capital (the holding company for Silvergate Bank) is buying Diem’s “technology” for “about $200 million, a person familiar with the matter said.” I would just love to see what Silvergate thinks it’s getting $200 million worth of. Or if there’s some other reason to throw $200 million down this black hole. [WSJ, paywalled]
Update, 2 February: apparently it’s a pile of blockchain patents — because Silvergate want to use Diem’s software to do a stablecoin of their own.
Novi adds NFTs
Novi, formerly Calibra, was supposed to be Facebook’s custodial wallet for Diem — PayPal, but it’s Facebook. Novi eventually launched very slightly using the Pax Dollar stablecoin instead of Diem — for a pilot programme in Guatemala, and in the latest WhatsApp.
Novi uses Pax Dollars in the sense that there’s an account at Coinbase holding a pile of Pax Dollars. The end user sees a number in their Novi wallet app that’s just the number in Novi’s back-end database. The most efficient way to use the blockchain is still not to use it at all if you can.
US Senators are still unhappy with Facebook going even this far into payments.
Facebook is pushing forward its plans for NFTs. You’ll be able to use NFTs as avatars on Facebook and Instagram — just like you can on Twitter! — and they’re contemplating starting an NFT marketplace. Novi Wallet is apparently an important part of this. [FT, paywalled]
David Marcus, now-departed co-founder of Facebook’s Libra cryptocurrency project, mentioned in passing to Bloomberg in September that NFTs would be just the thing for the Metaverse. Second Life, but your fursona is an office drone.
Requiem for a nightmare
When I dived into Libra, the thing that really struck me was the arrogant incompetence. Facebook had no idea what it was doing, and it didn’t think that mattered.
For all the effort from journalists trying to work out the precise 12-dimensional chess Facebook must surely have been playing … maybe Libra was just very stupid. Because it was a blockchain project started by bitcoiners. Maybe it was always just dumb as hell.
— Shen Comix ✍️ (@shenanigansen) September 9, 2019
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