Zuckerberg’s Stablecoin Dream Shattered: Libra To Be Sold

[TL; DR]

1. Meta is planning to sell its stablecoin project, Diem, for about $200 million, according to the news published on January 26.

2. The project Libra started in May 2018. It aimed to use stablecoins to build a global payment network based on a number of global currencies.

3. Facebook released the second version of the Libra white paper on April 16, 2020, and then announced that Libra will be rebranded to Diem in December.

4. Regulators in the United States and Europe are still calling for a halt to the launch of Diem, though Facebook has done its best to meet as many regulatory requirements as possible.

5. Currently Diem is becoming an empty shell after many big-name corporate institutions have withdrawn, several executives have left, and regulators have strongly opposed it.

6. Novi, the digital wallet application is the only cryptocurrency project that Meta is developing, and it is also an "entrance" of Meta in the new era of the Metaverse.

Meta (formerly Facebook) is planning to sell its stablecoin project Diem (formerly Libra) for about $200 million, according to the news released on January 26. It is reported that Silvergate will buy Diem. Entering the cryptocurrency industry in 2013, Silvergate is a bank in the United States, committed to providing basic financial innovation solutions for the digital currency industry.

As a project strongly promoted by the social giant Meta, Libra was once entrusted with the vision of changing the global payment system. However, since it came to birth in 2019, Libra has faced many challenges due to regulatory, technical and more issues. Now Meta has resloved to sell Diem, which is embarrassing.

Crypto Payment Project Libra: What Internet Giants’ Are Dreaming About

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When the Libra project began in May 2018, Facebook appointed David Marcus, a former director of Coinbase's board of directors, as the head of its blockchain division. Then, Facebook hired a growing number of digital currency developers. In June 2019, Facebook officially launched the Libra project and established the Libra Association to provide services for the development of Libra and its blockchain. The association consisted of 27 large companies independent of Facebook, including Visa, Paypal, eBay, well-known investment company a16z, etc.

Libra means "Libra", one of the twelve constellations. It is homologous to the word Liberty, which also reflects the purpose of the Libra project. According to the white paper, Libra aimed to utilize stablecoins to build a global payment network based on a number of global currencies, trying to build a so-called "super-sovereign currency".

Based on the LibraBFT consensus protocol, the Libra blockchain, in terms of the underlying logic, is similar to Ethereum in that it supports smart contracts, and members of the Libra Association confirm transactions and verify blocks. Essentially, the Libra Association is close to a decentralized non-profit organization, allowing major nodes to come and go freely. Thus, even Facebook has no right to prohibit a competing platform from joining the Libra blockchain.

With nearly 3 billion users, Facebook attracts the world’s attention with every move, and Libra was no exception. In the future, even if only 5% of Facebook users buy Libra, the market value of Libra could have easily ranked among the top five in the cryptocurrency space. After Libra’s white paper was released, Bitcoin price soared, reaching an all-time high of $14,000. The dream was, once Libra was put in place, Libra would be the world's first crypto currency project founded by a technology giant, considering Facebook's massive user base. And it may have indeed changed the existing global payment system, especially the cross-border payment system. Moreover, Libra may also have expanded the scope of financial services beyond the existing payment system, providing the remaining 1.3 billion people in the world with accessible financial services.

Compared with the existing stable currency projects such as USDT and USDC, Libra did not only have the US dollar as a reserve asset but a package of sovereign currencies as a reserve (eSDR). This is not only a major innovation of the Libra project but also its ambition. But this innovation in turn has become the only weakness that hinders the development of Libra. Just like a saying goes, “He that would wear the crown must bear its weight.”

Rebranding to Diem doesn’t make the way easy

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Its design based on a “basket” of sovereign currencies is likely to change the current global payment system. That’s why regulators in the United States and Europe still hold a negative attitude towards the Libra project. The U.S. Senate Financial Services Committee held two consecutive hearings, and the French and German finance ministries also announced in September that they would jointly boycott Libra. By the end of 2019, many founding members of the Libra Association, including Visa, eBay, PayPal, and MasterCard, also left the Association. All this hit the Libra project hard.

Facebook released the second version of the Libra white paper on April 16, 2020, announcing that it would abandon the original plan to anchor a package of fiat currencies and instead support a single fiat currency, such as LibraUSD based on the US dollar and LibraEUR based on the euro. Libra announced in December 2020 that it would be renamed Diem and is expected to be officially launched in early 2021. And the Libra Association would be also renamed the Diem Association. Besides, Calibra, a dedicated digital wallet developed by Facebook for Libra, would be also renamed Novi. Nevertheless, Diem’s way didn't get any easier.

In an unfortunate turn of events, the crypto community naturally thinks that the traditional technology company background of Diem is untrustworthy, and Diem's low degree of decentralization is also considered to be contrary to the original intention of the blockchain. For regulators, the deep integration of the influence of giants and the destructive power of stablecoins in the Internet age may lead to uncontrollable effects. In addition, Facebook has become the target of public criticism, because it has also lost public trust due to data breaches and reported manipulation of the U.S election.

The U.S. President's Working Group on Financial Markets released a report in November 2011, saying that the cooperation between stablecoin issuers and wallet providers, and commercial companies may lead to excessively concentrated economic power. regulators in the United States and European countries still call for a halt to the launch of Diem, though Facebook had vigorously promoted Diem's compliance and that it has met regulatory requirements to the greatest extent possible.

Currently, Diem is becoming an empty shell after many big-name corporate institutions have withdrawn, several executives have left, and regulators have strongly opposed it. Thus, the sale of Diem this time is also understandable. After losing the project Diem, the digital wallet application Novi (formerly Calibra) has become Meta’s (formerly Facebook) only cryptocurrency project. Novi no longer seeks to cooperate with Diem or other stablecoins, but is more of an "entrance" of Meta in the new era of the Metaverse.


Author: Ashley. H, Gate.io Researcher
*This article only represents the views of observers and does not constitute any investment advice.
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