Zuckerberg’s Diem project could breathe new life under Silvergate
- Diem was formerly known as Libra and was a project developed by Meta.
- It was intended to be a stablecoin, but ultimately, only the experimental code was released.
- The project was abandoned, however, Silvergate could breathe new life into it.
Diem is a cryptocurrency that formerly went by the name of Libra. It was essentially this permissioned blockchain-based stablecoin payment system, originally proposed by Meta Platforms, which was at the time known as Facebook.
This rebranding occurred in December of 2020 and indicated that a different approach would be taken going forward; however, this ultimately resulted in more headwinds, including the departure of key executives.
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This stablecoin was to be launched in 2020. However, only experimental code was released until the project was fully abandoned in 2022. The project, currency as well as transactions would have been managed by the Diem Association.
The Silvergate Bank Sale
However, the Diem Association is selling the technology to Capital for $200 million, according to a report by The Wall Street Journal.
The California bank, which serves blockchain companies, agreed last year to partner with Diem as a means of launching a U.S. dollar-pegged stablecoin, where the agreement was intended to essentially revive the struggling project.
Diem, however, was in discussions with investment bankers to essentially sell the intellectual property and return money to the investors.
The Future of Diem
Libra as a project had the initial vision of being a stablecoin backed by a basket of FIAT currencies, which could be used on a global scale as a means of exchange.
That said, it saw international regulatory backlash, where lawmakers demanded that all development cease until they could provide regulatory guidance and ensure that it did not prove to be a threat to financial stability.
Diem Networks U.S. is a unit of the association that would run the Diem Payments Network and register as a money services business with the Financial Crimes Enforcement Network (FinCEN).
Silvergate, on the other hand, would be the formal issuer of the Diem USD stablecoin, where it would manage the reserves backing the token.
Note that the U.S. Federal Reserve expressed its concerns regarding this plan, citing that it would not guarantee to give its approval.
Furthermore, federal lawmakers also pushed back against Novi (formerly known as Calibra), which is a Meta subsidiary focused on building a wallet that would be compatible with Diem. Novi, however, announced a pilot program through a partnership with Paxos last year.
In a letter to Mark Zuckerberg, a total of five U.S. Senators said that “Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.”
The idea behind Diem (Formerly Libra) was solid. However, the execution could have been handled better, and this second wind gives Silvergate the opportunity to make this project shine.
The main issues Diem faced were regulatory concerns, and being a little bit ahead of its time. In other words, regulator’s weren’t given a heads up, and were not prepared to enact changes quickly enough, which ultimately resulted in backlash.
If Meta (Formerly Facebook) handled the news and overall PR better, and had more backing from regulators, then the project might have had a different fate.
This announcement might bring back life to an otherwise unproven project. The main issues that Diem was facing and still faces are the regulatory issues; however, this sparks new life, hype, and potential for this stablecoin to actually get released one day.