Facebook to drop Diem in favour of third-party stablecoins

The Novi Financial, the company behind the Diem project (formerly Calibra), is considering the possibility of collaborating with third-party stablecoin issuers. The Block reports, citing informed sources. The Block.

Back in mid-June 2019, Facebook announced the Libra project—a global stablecoin backed by a basket of currencies and other assets. The non-profit Libra Association was supposed to oversee the stablecoin ecosystem.

After the announcement, a wave of regulatory criticism followed. As a result, many major participants left the Libra Association, including eBay, Visa and Mastercard.

In April 2020, the association abandoned the original concept. Instead of a global stablecoin, it decided to issue several assets, each pegged to different fiat currencies.

In May, Facebook renamed the digital wallet for the stablecoin from Calibra to Novi. Novi Financial is the crypto subsidiary of the company created after the rebranding. In December of the same year, the Libra Association changed its name to the Diem Association. 

In 2021, the Diem Association and Silvergate Bank reached an agreement whereby the latter became the ‘exclusive issuer’ of the dollar-linked Diem. The parties have yet to launch the stablecoins. The Block’s sources attributed the delay to regulatory hurdles. 

Three sources of the publication said Novi Financial is now negotiating with stablecoin issuers Circle and Paxos. The company allegedly wants to use USD Coin (USDC) and Paxos Standard (PAX) in its wallet. 

Silvergate noted that its partnership with the Diem Association remains in force. A bank spokesperson also stressed that it “remains the exclusive issuer of Diem USD”.

“We still believe that stablecoins represent an exceptional opportunity. With the development of the regulatory framework, they have the potential to become an alternative means of payment for consumers around the world,” Silvergate said.

One of The Block’s sources close to the Diem Association called the association a ‘zombie organization’, explaining that it has not been officially closed.

“They are exploring new options, but the odds of success seem negligible,” he noted.

Earlier, the Diem stablecoin, along with Tether (USDT), drew attention at a closed meeting of the Financial Markets Working Group under the U.S. president, according to Bloomberg. Participants expressed concern about the network effect of Diem that could arise from Facebook’s audience scale.

In June, US Treasury Secretary Janet Yellen urged the swift creation of a regulatory framework for stablecoins. In the same month, the Fed Jerome Powell expressed doubts about the need for stablecoins. He compared stablecoins to money market funds and savings banks.

In June, Boston Fed President Eric Rosengren said that stablecoins pose a threat to the financial system. Deputy Chair Randall Quarles urged not to fear stablecoins.

Earlier, U.S. Senator Don Beyer introduced to the House a bill to establish a comprehensive regulatory framework for the digital-asset market, proposing a ban on certain stablecoins.

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