You’d be forgiven for wondering if the Facebook-backed Diem (formerly know as Libra) will ever see the light of day. News about its entrance to the market is on the slim side even though there were plans to originally launch the stablecoin back in 2020.
The Diem Association, which is overseeing the stablecoin’s launch, last blogged an update at the end of August. It refers to the Diem Association’s growing maintainers team. The last blog before that was in January and merely talked about programming language.
The most ‘exciting’ news came in May, in the form of a press update where The Diem Association announced a partnership between its wholly owned subsidiary Diem Networks US and Silvergate Capital Corporation, which will result in Silvergate Bank becoming the exclusive issuer of the Diem US-dollar backed stablecoin.
The Diem Association’s Twitter feed is equally sombre – with most recent tweets consisting of retweets from co-creator of Diem Christian Catalini talking about robust stablecoin design and how Diem can contribute to financial inclusion.
The regulatory wall
While this may be vital information to share in the build up of the stablecoin’s launch, it hardly inspires excitement and could be considered unusual given that it’s backed by the world’s biggest social media platform, which built itself up on people sharing information daily.
So, what’s going on? Well, there are several reasons for the delay in Diem’s launch – the main being its clashes with regulators.
For example, back in May it withdrew its application for a Swiss payment license to the country’s Financial Market Supervisory Authority and instead shifted its operations to the US. It’s now convincing US regulators that it can meet their demands.
Diem clashed with regulators even earlier than that. Back in June 2019 it got backlash from regulators, central bankers and politicians amid fears it could threaten sovereign currencies like the dollar, make money laundering easier and infringe on users’ privacy.
Several key business supporters backed out including Visa, Mastercard and PayPal. The Diem Association also lost several executives like co-founder Kevin Weil.
But here’s why you shouldn’t write off the Diem stablecoin into the crypto history books just yet.
It’s got promising partnerships
By building an alliance with other companies under the Diem Association, Diem has a good chance of becoming the defacto stablecoin.
Alejo Pinto, chief growth scientist at Pontem, an experimentation platform for Diem that enables product testing in internationally regulated market hints that regulators may be swayed by all the major partnerships the Diem Association has arranged.
“After the partnership announcement with Silvergate and the strategy shift to single currency stablecoins, Diem has been clear in signalling they aim to support existing fiat currencies with digital infrastructure. Through more partnerships with big-name banks globally, it is likely they will achieve this goal,” he says.
It’s got Facebook
Facebook has made great efforts to distance itself from Diem, pointing out that while it’s a backer it’s hardly the only company in the game with others such as PayU, Andreessen Horowitz, Spotify and Uber – to name just a few – involved.
But the Diem Association could no-doubt piggyback off Facebook’s infrastructure. “Facebook has a wide user reach, and the launch of Diem will expose new people to the digital assets space, which is good and beneficial for the entire industry,” says Ivailo Jordanov, co-founder of the venture capital firm 7percent.
America won’t want to be left behind
According to FT.com, China’s central bank digital currency (CBDC) is already in trial with some 24 million users and should launch in 2022.
Adrian Pollard, crypto trader and co-founder at BitHolla, warns: “I think the governments don’t have a lot of choices because if they don’t allow Facebook or other large tech companies to get involved in money it will allow China’s CBDC to gain popularity.”
It will dominate thanks to Facebook’s communication app
Diem could become a very dominant stablecoin because of all the communication applications that Facebook controls.
“Like WeChat pay, which started as just a messaging application, WeChat now is a major fintech application that has the record number of peer-to-peer payments. It isn’t hard to imagine Facebook with its messaging and social media platforms doing the same thing if they have a stablecoin,” says Pollard.
Diem doesn’t have first the mover advantage. Meaning that the growth and reputation that other stablecoins have garnered merely by virtue of already being available in the marketplace, could be a hurdle.
“Other stablecoins are well established and adopted by users in the crypto space, protocols and exchanges, so Diem will need to provide added value to see major adoption by those users,” says Jordanov.
But Facebook could also be a big advantage here. “Where Diem has a large opportunity is tapping into the Facebook users who are not already active in the crypto space, introducing them to digital assets and converting them into users,” adds Jordanov.
Another impediment to Diem’s launch and uptake could be its association with social media giant Facebook and the privacy concerns surrounding it. But Pinto points out that The Diem Association is a separate entity from Facebook and is comprised of 27+ independent organisations.
He says: “Our understanding is that data will be tracked in compliance with international Financial Action Task Force guidelines for Know your Customer/anti-money laundering checks, but they are assuring that data will not be used by Facebook for other purposes such as advertising.”
But will investors be convinced that Facebook will resist the urge to snoop? Only time will tell.