Facebook’s digital currency Diem – once seen as a force that could undermine financial stability and competing currencies – is now on life support after it was announced last week that it was Association Behind it are talks with a small Californian bank to sell its assets for around 200 million euros.
But the announcement may not be a setback in the global crypto boom at all. In fact, Diem might have had to die for Krypto to live. Some see Diem as the catalyst that pushed policymakers on both sides of the Atlantic to take crypto seriously and regulate the market. And that’s a good thing from the point of view of some industry players.
“Diem brought quite a bit of public awareness and forced regulators to take crypto seriously given Facebook’s massive size,” said Mathieu Hardy, chief development officer at OSOM, an Estonia-based fintech company offering a crypto wealth manager with artificial intelligence managed portfolios. “It may have been a very expensive experiment by Facebook … but it stirred things up.”
“[It] likely expedited regulatory work, which would have taken longer if a player the size of Facebook hadn’t gotten involved,” he added.
Not so fast
Given that international institutions, central bankers and policymakers once feared Diem (originally called Libra) might overwhelm their regulatory reach, €200 million seems like a paltry sum.
For advocates of tighter regulation like MEP Stefan Berger, Diem’s departure signals that even the most powerful players – in this case Mark Zuckerberg, CEO of Facebook’s parent company Meta – will fall in the face of fierce political opposition and bureaucracy.
“Zuckerberg’s attempt to become a central bank was unsuccessful,” Berger quipped. “Facebook has been trying to reach for the stars with a project that cannot meet the necessary regulatory requirements when it comes to nothing less than the stability of the financial system.”
Berger, a German conservative, is bringing a bill through the European Parliament that will regulate crypto asset markets (mica) and is expected to come into force in 2024. He is among the many lawmakers who felt Diem’s plans were a threat to monetary sovereignty, given that Facebook has 2.9 billion users worldwide. Eventually, anyone using Meta’s other apps like Instagram, Messenger, and WhatsApp would have gained access to Diem as well.
Such global reach and access to payment data was a particularly chilling prospect for policymakers after the Cambridge Analytica scandal surfaced in 2018. He revealed how around 50 million US Facebook users had their data collected without their knowledge.
With that in mind, Diem was unveiled in the summer of 2019 with the backing of 25 other tech companies, including Uber, Spotify, and Coinbase. Only six months later, the EU struck ban which stipulated that no global stablecoin – the crypto asset underlying Diem – could operate on EU soil until rules and oversight were in place. Stablecoins are tied to a basket of currencies or financial assets to reduce price volatility.
Diem tried to reassure policymakers that it wouldn’t turn people’s data into money, but would help the unbanked and allow people to move money across borders without time delays or high fees. That argument came to nothing, and EU lawmakers dealing with MiCA are now imposing tough regulatory requirements on any crypto asset capable of dominating the payments landscape.
The European Central Bank, meanwhile, will be given the power to veto any crypto asset it doesn’t like.
The backlash in Europe was so intense that in spring 2021 Diem gave up his Swiss headquarters and crossed the Atlantic in hopes of a friendlier reception.
“I find this mindset profoundly un-American,” Meta’s then-CFO David Marcus wrote in a blog entry last August. “We can and should play a key role in improving the unacceptable condition that persists for too many people, and America’s way of doing that is by enabling more competition and innovation to break the deadlock of decades of stagnation .”
But US lawmakers were less impressed and soon urged Meta to abandon its crypto plans. Meta was offended – while Marcus Leave Meta and Diem in November.
Meta’s next act
Despite Diem’s loss, others in the crypto space say the tide is turning.
For one, the ECB is starting to develop a digital euro to keep up with the growing popularity of cryptocurrencies. ECB Executive Board member Fabio Panetta even went so far as to warn EU lawmakers last November: “If we don’t do it, others will.”
Meanwhile, some crypto players are trying to make peace with regulators and improve the image of the industry.
“It’s a maturing process,” is how Bitstamp’s CEO Julian Sawyer described the regulatory crackdown in a recent interview with POLITICO. “What the industry wants is clear guidance from regulators on what is and isn’t possible.”
And then there are Zuckerberg’s latest plans for crypto. Meta began trying last fall a digital wallet, called Novi, in the US and Guatemala. Unlike traditional payments, it will be able to send and receive stablecoins quickly and cheaply, opening a new battleground with policymakers.
Digital wallets could be the next breakthrough in fintech as a new platform for people to store personal information like a driver’s license. Carrying this information on your phone could make it much easier for banks and wealth managers to conduct due diligence before offering services or financial products to clients, for example.
The EU will be ready for Novi when and if European smartphones matter: The EU executive revealed a bill last summer, which will set industry standards for digital wallets to ensure people’s privacy and personal information are protected — with a firm eye on Meta.
“We want to empower citizens by giving them full control over the data they share, and also put an end to the ‘wild west’ where personal data can be exploited with minimal or no security precautions,” said the Croatian S&D MEP Romana Jerković, who is the guardian of the bill through Parliament.
CORRECTION: This story has been updated to clarify this Jerkovic is from Croatia.
Want more analysis from POLITICS? POLITICS Pro is our premium secret service for professionals. From financial services to commerce, technology, cybersecurity and more, Pro delivers the real-time intelligence, deep insights and game-changing information you need to stay ahead of the curve. E-mail [email protected] to request a free trial.