After regulatory pressure, Mark Zuckerberg’s controversial cryptocurrency project, which he previously defended in front of Congress, is disintegrating. The Diem Association, a crypto effort formerly known as Libra and funded by Meta Platforms is considering selling its assets to repay funds to its investment members. Diem is in talks with investment bankers about how to best sell its intellectual property and find a new home for the engineers who created the technology, cashing out whatever value remains in its once-promising Diem coin venture.
When Meta’s Facebook originally announced the concept of stable digital currencies (stablecoins) to revolutionise global financial services in 2019, they did so in partnership with dozens of other companies. However, the collaboration was insufficient to shield the project from international regulatory scrutiny. After Zuckerberg was called to testify, several of the project’s partners dropped out, and it was renamed Diem. Diem’s objectives were cut back, and David Marcus, the company’s creator, left Meta last year. The group had an agreement with Silvergate Capital Corp. to issue Diem, but the effort was thwarted by the US Federal Reserve.
Diem announced in May that Silvergate Bank, a subsidiary of the company, will be the issuer of the Diem USD stablecoin, a type of cryptocurrency tied to the US dollar that can be used to purchase and sell other cryptocurrencies. After a lengthy back-and-forth between Diem supporters and regulators, Fed officials eventually warned Silvergate last summer that they were concerned with the proposal and couldn’t guarantee the bank that it would be allowed to proceed.
Silvergate was unable to issue the new asset with assurance that the Fed would not crack down due to the lack of a green light from the bank’s regulator, and therefore the Diem attempt had no coin.
It’s unclear how much Diem’s intellectual property, or the engineers who helped design it, might be worth to a potential buyer. The people stressed that discussions are still at the early stages, and there’s no guarantee Diem will find a buyer. Meta owns around a third of the company and the balance is owned by members of the organisation, which include venture capital firms and technology companies, agreed to invest and pay to join when it was founded.
Venture capital firms including Andreessen Horowitz, Union Square Ventures, Ribbit Capital, and Thrive Capital, as well as Singapore state-owned investor Temasek Holdings Pte, are listed as partners on Diem’s website. The federal watchdogs finally made it clear what they were after in November. If stablecoins are to be used as a means of buying and selling items, issuers should be regulated institutions, according to a report by the President’s Working Group on Financial Markets.
The regulators expressed concern about what would happen if a large network of a tech company’s customers suddenly began trading in a new currency, and that pairing a stablecoin issuer with a large organisation may lead to an undue concentration of power.
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