The Latest Developments of Facebook’s Stablecoin Since Rebranding to Diem
You all remember the stablecoins hype back in 2020? You would have mistaken it for a new concept in the crypto space, but stablecoins have been here for a while. Tether, one of the earliest stablecoins, was launched back in 2015. The stablecoin concept is an idea aimed at addressing the volatility of cryptocurrencies. So basically, stablecoins are cryptocurrencies pegged to a conventional asset.
Formerly known as Libra, Diem is a stablecoin co-championed by the social network giant Facebook. The Libra Association decided to rebrand to Diem after suffering a significant setback when some of its founding members developed cold feet about the project.
A Brief History About Diem
Diem was first unveiled in June 2019 as Libra, a Facebook-led digital currency. Since then, the project went through setbacks, including acquiring and losing partners and slaps from regulators. The project, unveiled with an ambitious whitepaper in 2019, eventually scaled back its aims and even moved to Switzerland.
Its team, formerly the Libra Association, is now the Diem Association. Diem Association chose to abandon the initial intention of launching a stablecoin backed by a basket of fiat currencies. The group decided to have a series of tokens backed by fiat currencies. The overhaul addresses the worries of the departing co-founding partners and regulators.
Diem Moves Its Operations to the US
The Diem Association is currently the overseer of the Facebook-backed stablecoin project. The association comprises 26 financial organizations and non-profit firms, a downscale from the initial 28 founding members. However, the association has acquired other members after PayPal, eBay, Stripe, MasterCard, Visa, Booking Holdings, and Mercado Pago dropped out.
According to reports issued earlier in May, the association is relocating its operations from Geneva, Switzerland, to the United States, where the project’s first phase will be focused. Diem had earlier applied for a payment system license from Swiss authorities but is now withdrawing the application.
Responding to the developments, FINMA said that the application was at an advanced stage but acknowledged that Diem plans to transfer operations to the US. Diem’s headquarters will now be in Washington DC, where the project’s US unit sits.
In a statement, Diem’s CEO, Stuart Levy, noted that the project had significantly benefited from the Swiss intensive licensing procedures and the constructive feedback issued by FINMA and the regulatory authorities convened by the body.
Diem’s Partners with Silvergate Bank to Launch a US Dollar Stablecoin
According to Levy, the Diem team now intends to take on its stablecoin project fully within the regulatory framework of the United States. In that sense, the association partnered with a cryptocurrency-friendly bank in the US, Silvergate, the sole Diem USD Stablecoin issuer.
The CEO stated that the team is committed to providing a safe payment system that will allow faster and cheaper for consumers and businesses by exploiting blockchain technology. Levy noted that the Diem Association looks forward to achieving the shared vision through the partnership.
Diem Networks US, a subsidiary of the Diem Association, will be running the payment system, Diem Payments Network. It will be a permission payment network and will only allow transactions from approved participants.
The network is registering with the Financial Crimes Enforcement Network as a money services entity.
Silvergate, on the other hand, will be managing the reserve backing the stablecoin and will also be the exclusive issuer. Silvergate is notably a payments network already and even supports stablecoins transactions via its Silvergate Exchange Network.
The Diem USD Stablecoin will be a pilot project as the association plans to focus on providing multiple stablecoins in the future. The pilot will be on a small scale, focusing on the US market and consumer transactions. Also probably available will be the options for users to make purchases.
First Digital Assets Group CEO Ran Goldi feels that Diem’s technology has changed significantly in the last one and a half years. It has transitioned from a technology termed naïve by some co-founders to a more sophisticated technology that addresses some of the concerns raised by regulators.
The regulators were more concerned with the building infrastructure to allow users to accept Diem as a payment network. As even blockchain analysis experts like Michael Gronager think the project will get through this time, Diem has high hope.
The Diem Association has suffered a set of shortcomings right from the Facebook-Cambridge Analytica scandal. The controversy was the primary reason for the strict scrutiny of the Diem project.
The social network’s involvement was seen as a barrier to user privacy protection and the threats of money laundering. The project was also seen as a threat to the US dollar’s dominance. Its technology was seen as naïve, which occasioned Diem’s loss of hi-tech investors.
Diem’s technology has now dramatically improved to a complex blockchain that will support stablecoin transactions. Blockchain analyst Gronager believes that Diem is a significant movement and equates it to Tesla.