Diem starts sale negotiations, Mark Zuckerberg's stablecoin ambitions crumble

Source: Bloomberg

Compiled by: PANews

Due to the Federal Reserve's unease with Diem, the stablecoin project backed by social media giant Meta is attempting to sell its assets. Since its inception, this cryptocurrency project has been controversial; although Mark Zuckerberg defended the project before the U.S. Congress, Diem has unraveled under regulatory pressure.

According to insiders, the Diem Association, supported by Meta Platforms Inc., is weighing the sale of its assets. Diem originated from Facebook's cryptocurrency project Libra, and once the assets are sold, the Diem Association will return capital to early investors. Insiders indicate that the once-ambitious stablecoin project may soon come to an end, as the Diem Association hopes to realize some value from the "remaining hope." They have already begun discussions with investment bankers on how to sell their intellectual property and find new homes for the engineers who developed the technology, although these matters have not been publicly confirmed.

In 2019, Facebook (which had not yet rebranded to Meta) first announced its stable digital currency plan and formed partnerships with dozens of companies, aiming to revolutionize global financial services. Although many financial consortiums were among these partners, they could not protect Libra from global regulatory scrutiny. Soon, Mark Zuckerberg was summoned by the U.S. Congress, and some partners chose to abandon the project, forcing Facebook to rename the stablecoin project to Diem, with ambitions gradually diminishing.

In 2021, Diem project head David Marcus left Meta, and insiders revealed that the Diem Association had reached a consensus with Silvergate Capital Corp. to issue the Diem stablecoin, but faced resistance from the U.S. Federal Reserve, which effectively dealt a final blow to Diem.

Last May, Diem announced that Silvergate Bank would become the issuer of the Diem dollar stablecoin. As a cryptocurrency pegged to the dollar, Diem could be used to buy and sell other cryptocurrencies. According to insiders, there were prolonged discussions between Diem and regulators, but ultimately, Federal Reserve officials informed Silvergate that they felt "uneasy" about the stablecoin project and could not assure the bank that such activities would be permitted. This meant that without the green light from banking regulators, Silvergate would not be able to issue Diem, as a "hasty" launch could likely face backlash from the Federal Reserve, resulting in the suspension of Diem's issuance plans.

As of now, the Federal Reserve spokesperson declined to comment on whether there had been prior negotiations with Diem and Silvergate; the Diem Association and Meta also did not immediately respond to requests for comment. At this stage, it remains unclear how potential buyers will assess the value of Diem's intellectual property or how to assist the project development engineers. Frankly, discussing these matters now seems premature, and there is no guarantee that Diem will ultimately find a genuine buyer.

According to another insider, Meta owns about one-third of the Diem project, with the remaining shares held by members of the Diem Association. According to this insider, when the association was established, members, including venture capital firms and tech companies, agreed to invest and pay to join; however, it is currently unclear which companies, besides Meta, have genuinely invested in the project.

The official Diem website lists its partners, including venture capital firms such as Andreessen Horowitz, Union Square Ventures, Ribbit Capital, and Thrive Capital, as well as Singapore's state-owned investment firm Temasek Holdings Private Limited. Other partners include cryptocurrency-focused companies like Coinbase Global Inc., as well as ride-sharing giant Uber Technologies Inc. and commercial platform Shopify Inc.

In November 2021, U.S. federal regulators outlined their regulatory goals. According to a report from the President's Working Group on Financial Markets, if stablecoins are used as a means of buying and selling goods, the issuers of stablecoins should be regulated like banks, as the vast user networks of tech companies using stablecoins for transactions could lead to unforeseen consequences, and the combination of stablecoin issuers and tech giants could lead to excessive concentration of economic power.