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WASHINGTON (Reuters Breakingviews) - Facebook’s cryptocurrency experiment is a tale of what could have been. Diem Association is winding down under regulatory pressure, the Wall Street Journal https://www.wsj.com/articles/facebooks-cryptocurrency-venture-to-wind-down-sell-assets-11643248799?mod=hp_lead_pos4 reported on Wednesday, less than three years after the digital asset group’s splashy launch. The involvement of the social network, whose parent was renamed Meta Platforms, proved toxic. It’s a missed opportunity to make cryptocurrencies respectable.
Diem’s obituary was being written from the moment Facebook unveiled the effort in 2019. Mark Zuckerberg’s firm had gathered some of the biggest names in payments including Visa, PayPal and Stripe, to launch a cryptocurrency then known as Libra. The group eventually decided to issue a so-called stablecoin, backed by the U.S. dollar and other currencies, which would facilitate digital payments without the volatility of digital tokens like bitcoin.
But the backlash against Facebook, which was then already under global regulatory pressure over its size and failure to police political content, was swift. Some U.S. lawmakers called for the company to abandon the project because of its threat to financial stability. The Federal Reserve was also critical. Visa and several other companies left the consortium. Diem’s assets will fetch just $200 million, according to the Wall Street Journal.
Diem’s failure matters because there’s still no effective regulatory framework to police cryptocurrencies. Digital tokens have attracted widespread speculative interest but with no protection for investors and piecemeal enforcement of money-laundering rules. Though regulators suggested regulating stablecoin issuers like banks, there are currently no rules on liquidity and risk management for digital assets.
Take a rival stablecoin like tether, which was fined $41 million by the Commodity Futures Trading Commission in October for claiming that its coin was completely backed by fiat-money assets. Tether’s reserves supported less than 30% of the coins in circulation from 2016 to 2018, the CFTC said.
Maybe central banks, many of which have subsequently launched plans for their own digital currencies, were never going to let a private company challenge their authority. But it’s also possible that a technology company with a better reputation among policymakers, like Microsoft, could have turned a Diem-like dream into reality. Facebook’s experience likely precludes that scenario, at least for now. That’s a missed opportunity for cryptocurrencies.
CONTEXT NEWS
- Diem Association, the cryptocurrency consortium founded by Meta Platforms’ Facebook unit, is winding down operations and selling its assets for about $200 million, the Wall Street Journal reported on Jan. 26. California-based Silvergate Capital, which had been set to issue so-called stablecoins for Diem, will acquire the technology.
- Regulators and lawmakers in the United States and other countries have criticized Facebook’s project since it launched in 2019, saying it could pose a risk to financial stability. Some of them urged the company to drop the venture.
