Facebook-backed company Diem plans to launch a digital currency pilot in 2021

Facebook wanted to revolutionize finance with a global digital currency – then the regulators came along.

The token, first proposed in June 2019 under the name Libra, was originally intended to be a universal currency pegged to a basket of sovereign currencies such as the US dollar and euro.

But after the organization overseeing the project faced strong opposition from regulators around the world, it lost key supporters, including Visa and Mastercard. The group eventually watered down their plans, opting for multiple “stablecoins” backed one-for-one by various government-backed currencies, as well as a multi-currency coin.

The Facebook-backed digital coin now known as Diem is expected to launch later this year, albeit in a much more limited form. When it finally arrives, diem won’t come with the same fanfare and controversy of the original idea that the social media giant envisioned nearly two years ago.

stablecoin pilot

The Diem Association, the Switzerland-based nonprofit overseeing Diem’s ​​development, intends to pilot a single stablecoin pegged to the U.S. dollar in 2021, according to a person familiar with the matter.

The person, who preferred to remain anonymous because the details have not yet been released, said this pilot will be small in scope and mostly focus on transactions between individual consumers. There may also be an option for users to purchase goods and purchases, the person added. However, there is no confirmed launch date and the schedule could therefore change.

“It’s really gone off the radar in a pretty conspicuous way,” Michael Casey, chief content officer of cryptocurrency publication CoinDesk and a former financial journalist, told CNBC.

Diem was tested intensively when it was introduced. Given Facebook’s wide reach — it had 2.8 billion monthly active users in the fourth quarter of 2020 — central bankers and politicians feared the currency could threaten currency stability and potentially allow money laundering. Facebook’s involvement also raised concerns about user privacy.

“It was such a stunning challenge to the international order that the backlash was just very strong,” Casey said.

A major concern, according to Casey, was that this posed a threat to US dollar dominance. Two months after Facebook unveiled Libra, former Bank of England Governor Mark Carney proposed a new digital currency based on a global basket that could lower the dollar’s status as a world reserve currency.

Diem’s ​​technology has “changed dramatically in the last year and a half from being a naive blockchain to a very sophisticated blockchain that you can see trying to answer some of the questions that regulators have had,” said Ran Goldi, CEO of First Digital Assets Group. which builds an infrastructure so that merchants can accept diem as a means of payment.

“I think it’s going to be beyond the gates this year,” said Michael Gronager, CEO of blockchain analytics firm Chainalysis. “It would be a missed opportunity if not.”

“At the same time,” Gronager added, “it is one of several initiatives taking place and is similar to Tesla’s $1.5 billion crypto purchase. This is just part of a larger movement, not a new movement.

Indeed, diem – or Libra – may have been the big crypto story of 2019. But bitcoin and cryptocurrencies have gained significant momentum over the past year, with bitcoin recently rising to a new all-time high above $60,000 and big companies like Tesla and Square making big bets on the digital coin. Meanwhile, crypto exchange Coinbase went public with a landmark direct listing on Nasdaq.

What’s next for you?

The Diem Association has lost numerous members and executives nearly two years after its initial disclosure.

Visa, Mastercard and Stripe were some of the first companies to pull out of the association. This was followed by an exodus of other members, including PayPal, eBay and Vodafone. Meanwhile, the project has also suffered a number of notable departures, from Kevin Weil, head of Facebook’s proposed digital wallet Novi, to Dante Disparte, Diem’s ​​head of public affairs.

At the same time, Diem underwent a complete transformation, rebranding from Libra earlier this year and bolstering its leadership team with major hires like CEO Stuart Levey, who was formerly chief legal officer at HSBC.

Diem is currently in talks with Swiss financial regulators to obtain a payments license, a crucial step that would further move the organization towards launching its digital currency project.

“A big step in our dialogue with regulators was a phased approach to adoption,” Christian Catalini, Diem’s ​​chief economist, told CNBC’s Joumanna Bercetche last month.

“We will gradually roll out different functionalities and use cases and applications in different areas,” he said, adding that both large and small members would have to undergo strict anti-money laundering controls.

“Once we get the green light, we’ll start experimenting with a small number of users and a small number of players,” Catalini said. The goal is to ensure the technology and back-up system is working as expected, he added.

And although it’s starting with a limited pilot, the group plans to eventually involve dealers and other partners. It remains to be seen which ones.

“network effect”

“What you get when an institution like Facebook endorses a stablecoin is much better distribution,” Gronager said. “You can put it in apps, add it to a lot of other places, and I think that’s going to be strong.”

“We’ll see when it hits the market, but already today much of the interest in crypto is also speculative,” he added. “It will basically allow more people to get into crypto easily.”

However, this also brings concerns about user data, an issue that has tarnished the project due to Facebook’s history with privacy scandals. For her part, Diem says she takes data protection “very seriously”.

“Diem himself will not have any private information about the customers,” Catalini said. “Some of our members have made commitments regarding data separation between social and financial data.”

Nonetheless, the global central bank race has started to come up with their own digital money strategy. The People’s Bank of China is leading the way, testing a digital version of the yuan in a number of cities, while the UK central bank is considering whether or not to issue its own digital currency. And some experts say we shouldn’t count them yet.

“The story of digital money in the 2020s will be the growth of tokenized money,” a team of Citi analysts led by Ronit Ghose, global head of banking research, wrote in a research note last week.

“Central banks … and big tech … are building new payment formats and rails alongside wider cryptocurrency adoption,” Citi analysts wrote. “Stablecoins like Diem could benefit from the huge network effects of their big tech sponsors.”

Comments are closed.