Goodbye Diem, Facebook's global payment dream

Libra, which was once highly anticipated by Facebook, is now on the verge of being sold.

Facebook's crypto stablecoin project Diem (formerly Libra) plans to be sold to Silvergate, a bank that provides services to Bitcoin and blockchain companies, for approximately $200 million, according to people familiar with the matter.

As a stablecoin project that once attracted global attention, Diem has had a very unfortunate fate in the past two years. From its vision of changing the global payment system under the ecosystem of a super social network to now having to be sold, it seems that we really have to say goodbye to Diem.

Who is Silvergate?

Silvergate, which may take over Diem, has actually been associated with cryptocurrencies for a long time. This name, which may be unfamiliar to most users, is an important partner of major US cryptocurrency trading platforms.

Silvergate is a Federal Reserve member bank founded in 1988. After CEO Alan Lane purchased his first Bitcoin in 2013, he discovered a gap in the market. Since 2013, Silvergate has been committed to providing innovative financial infrastructure solutions for the digital currency industry.

In addition to banking services, Silvergate's most well-known service is the Silvergate Exchange Network (SEN), a 24/7 non-stop real-time payment platform. In the fourth quarter of 2021 alone, SEN processed more than $200 billion in transactions, and top institutions such as Coinbase, FTX, Binance US, Circle, and Paxos are all SEN users.

Even SBF of FTX has spoken highly of Silvergate, saying, "The time a crypto company has gone through can be divided into the pre-Silvergate stage and the post-Silvergate stage. It is no exaggeration to describe the transformation of Silvergate's financial services for blockchain companies. SEN proves day after day that it is one of the key pillars of the cryptocurrency settlement layer."

On May 12, 2021, when the Diem Association announced that it would abandon its plan to register with the Swiss financial regulator FINMA after a series of obstacles in its implementation, it returned to the United States and found Silvergate. It announced plans to cooperate with Silvergate: Silvergate will become the exclusive issuer of Diem's ​​US dollar stablecoin Dime USD.

In Facebook's view, cooperating with Silvergate, a bank that is involved in the encryption field, is a member of the Federal Reserve and is regulated by the Federal Reserve, is a good option to obtain regulatory approval.

However, in November 2021, the U.S. President's Working Group on Financial Markets stated in a report that the cooperation between stablecoin issuers and wallet providers or commercial companies may lead to excessive concentration of economic power, and such a combination may have an adverse impact on competition. They are also worried that users of stablecoins in which a giant technology company is deeply involved will face excessive obstacles and costs when switching to a new stablecoin.

So, Facebook has no choice but to take the risk.

Alternatives to Diem?

Losing Diem does not mean that Facebook has completely abandoned the direction of digital currency. They still have an option - Novi wallet, which is the original Calibra. From the name, it can be seen that Calibra is a wallet specially built for Libra. Now that Libra is gone, the renamed Novi has completely abandoned its original genes and continues to carry Facebook's payment dream.

Despite the widespread criticism of Facebook for its digital wallet that abuses data, Facebook still has high hopes for Novi. Not only does it plan to allow Novi to provide people with a variety of financial services, it has even acquired the customer service chatbot company Servicefriend to improve service quality.

At the same time, Novi began to seek cooperation with Circle and Paxos, issuers of compliant stablecoins, and considered using USDC or PAX as its own stablecoin. At the end of last year, Facebook's WhatsApp began testing cryptocurrency transfers within the chat interface for some users in the United States, and the tool was the Novi wallet.

At present, Novi seems to be Facebook’s last option in the cryptocurrency track. In their all-in metaverse future, Novi may help them regain their dream of encrypted payments.

The ill-fated Diem

Since the white paper came out in June 2019, any news about Libra has been a hot topic. After all, this is the latest product of a super social network with nearly 3 billion users. Once successfully launched, the potential impact on users is immeasurable. In mid-2019, when market sentiment was bleak, the news of Facebook's entry into cryptocurrency also brought a shot in the arm to the market. Four days after the launch of Libra, Bitcoin once again reached $10,000 after nearly a year. Then it rose all the way to the current highest point of the year, $14,000, and the total market value of Bitcoin also soared from about $160 billion to $228 billion.

But unexpectedly, Libra reached its peak as soon as it debuted.

In the first version of the white paper, Libra aims to become a payment giant by forming a global payment network in the form of a currency basket containing multiple legal currencies.

Under this vision, giants in many fields such as investment institutions, blockchain, social media, communications companies, e-commerce, shared travel, non-profit organizations, music, travel, payment, etc., such as Visa, Uber, eBay, Spotify, Coinbase and other well-known top companies have become Diem's ​​partners, and a super giant alliance is shining in Silicon Valley.

Libra’s partner lineup when it was first launched

But just when everyone was imagining that Libra could change the payment landscape, regulators were not so enthusiastic. They did not approve of Facebook's ambitions and were worried that Libra would have an impact on the dollar and even the United States, especially Facebook, a giant that has been labeled an "Internet bully." Not long ago, Facebook leaked data and used data to manipulate the election, and the impact is still ongoing. Regulators have already turned their noses up at this once proud giant.

Therefore, within four months of Libra’s launch, Congress held three hearings, and even Facebook founder Mark Zuckerberg had to personally attend the hearings to mediate the tension between the platform and regulators, but it was still to no avail. Although Zuckerberg told the regulators sincerely that Libra would have various KYC (user verification) and user protection, and even said that Libra was a protection and enhancement of the US dollar, the regulators did not agree. From the questions in the hearing, we can also see the anxiety of the regulators. As a company with a history of manipulating data, who can rest assured that the payment data of 3 billion people is handed over to you alone?

Under regulatory pressure, several partners such as Paypal and eBay withdrew from the Super League, and Libra was forced to revise its white paper, first introducing a single stablecoin anchor, then changing its name to Diem and anchoring only to the US dollar to maximize regulatory requirements. In the end, regulation failed to satisfy Facebook's wishes.

Although Diem is still struggling to hold on, it has issued a statement saying that what it is doing is still a "huge and excellent opportunity." But in the eyes of insiders, Diem has long been a "zombie organization" that exists in name only. Do they have no chance of success? Not really, but it's very small, so small that it can be ignored.

In September 2020, Diem co-founder Morgan Beller announced his resignation; in March 2021, another co-founder Kevin Weil announced his resignation; and at the end of 2021, David Marcus, head of the cryptocurrency project at Facebook's parent company Meta, also chose to resign. The global regulatory siege has caused these project leaders to back off. The departure of veterans has also made Diem's ​​prospects dim.

Regardless of whether Facebook can sell Diem to Silvergate, the stablecoin-based payment system no longer seems to be Facebook's priority. The Metaverse is the new tool that Facebook is currently using to try to change the world's disdainful attitude towards it.

The grand global stablecoin project, which lasted for two and a half years, is about to come to an official end.