After Plenty Of Scrutiny And Course-Correcting, Facebook Plans To Begin A Pilot Test For Diem This Year

May 3, 2021 03:00 PM
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CRYPTO MOVERS AND PRICES

 

Crypto was broadly up this morning as ETH set all-time highs of roughly USD 3,200. BTC and ETH spot volumes are 60% and 110% of the 30-day average, respectively.

Crypto Story of the Day

Facebook’s “stablecoin” project, Diem, is due to begin a pilot test this year, according to CNBC. The project and digital currency, initially referred to as Libra, has since been renamed to Diem and has walked back many of its original features due to regulatory scrutiny. 

Facebook’s Diem project was launched in June 2019. At the time, Diem was billed as a permissioned-blockchain that would eventually become “permissionless,” meaning anyone can interact and build on top of it, like the BTC network. The blockchain was originally meant to host major corporations— which over time grew a list that included PayPal, MasterCard, Visa, Stripe, Uber, and Lyft— that would act as validators and run nodes on the network. This network would host the Diem currency, a stablecoin backed by a basket of major fiat currencies. 

After significant regulatory scrutiny, which included multiple congressional hearings, a second iteration of the project's whitepaper introduced 2 crucial changes: 1) Diem would offer several currencies backed by individual fiat currencies, and a “multi-currency coin,” a composite of the “single currency coins” available on the Diem; and 2) foregoing a future transition “to a permissionless system.” 

In its decision to abandon efforts to become permissionless, the project’s new whitepaper cites the “key concern expressed by regulators” about the ability of such a system to guarantee “compliance provisions.” In explaining this reason, the whitepaper notes the challenge of performing “due diligence” on new validators. 

Following several Congressional hearings that called into question a range of technical and legal uncertainties related to the coin, a number of high-profile Diem Association members abandoned the effort, including PayPal, MasterCard, and Stripe. In its decision to leave, Visa, for example, pointed to the “the Association’s ability to fully satisfy all requisite regulatory expectations.” Currently, the Diem Association includes notable firms including Uber, Shopify, and Temasek, along with crypto native firms Coinbase, Anchorage, and Xapo.

We’ve maintained that it was a mistake by Facebook to position what was initially Libra in a “cryptocurrency wrapper.” When the project was announced, we contended it had very few characteristics that are associated with crypto, even notably decentralization and public blockchains. Under the pressure of regulators, Diem has walked back the few characteristics, such as an intention to eventually become some version of permissionless, that gave it any resemblance to crypto. 

Ultimately, with the new changes, Diem arguably shares even more characteristics with payment networks, like AliPay or WeChatPay, than it does with a new cryptocurrency.

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