The controversial cryptocurrency project that Mark Zuckerberg once defended in front of the US congress is unravelling after regulatory pressure.
The Diem Association, a cryptocurrency initiative once known as Libra backed by Meta Platforms, is weighing a sale of its assets as a way to return capital to its investor members, according to people familiar with the matter. Diem is in discussions with investment bankers about how best to sell its intellectual property and find a new home for the engineers who developed the technology, cashing out whatever value remains in its once-ambitious diem coin venture, said the people, asking not to be identified because the discussions aren’t public.
In 2019, when Meta’s Facebook first unveiled the idea of its stable digital currencies — stablecoins — aimed at revolutionising global financial services, they did so in collaboration with dozens of other companies. But the consortium wasn’t enough to protect the project from worldwide regulatory scrutiny. After Zuckerberg was called to testify, some partners abandoned the project and it changed its name to Diem. Diem’s ambitions scaled back and its founder, David Marcus, left Meta last year. The association struck an arrangement with Silvergate Capital to issue diem, but resistance from the US Federal Reserve dealt the effort a final blow, the people said.
Diem said in May that an affiliate of the firm, Silvergate Bank, was to be the issuer of the diem USD stablecoin, a type of cryptocurrency pegged to the US dollar that’s typically used to buy and sell other crypto. After a lengthy back-and-forth between the diem advocates and regulators, Fed officials finally told Silvergate last summer that the agency was uneasy with the plan and couldn’t assure the bank that it would allow that activity, the people said.
Without a green light from the bank’s regulator, Silvergate was left unable to issue the new asset with confidence the Fed wouldn’t crack down, and so the Diem effort had no coin.
A Fed spokesman declined to comment on the agency’s talks with the Diem advocates. The Diem Association declined to comment. Meta didn’t immediately respond to a request for comment.
It’s unclear how a potential buyer would value Diem’s intellectual property, or the engineers that helped develop it. Discussions are early, the people cautioned, and there’s no guarantee Diem will find a buyer.
Meta owns about a third of the venture and the rest of it is owned members of the association, according to one of the people. Association members, which include venture capital firms and technology companies, agreed to invest and pay to join when the group was formed, the person added. It’s unclear which firms, besides Meta, ended up investing in the initiative.
Diem’s website shows that its partners include venture capital firms such as Andreessen Horowitz, Union Square Ventures, Ribbit Capital and Thrive Capital as well as Singapore state-owned investor Temasek Holdings. Its website also lists crypto-focused companies like Coinbase Global, and others such as ride-hailing company Uber Technologies and commerce platform Shopify.
In November, the federal watchdogs finally made it clearer what they were after. Stablecoin issuers should be regulated banks if the tokens are to be used as a means of buying and selling things, the President’s Working Group on Financial Markets said in a report. The group of regulators said they feared what might happen if a vast network of a tech company’s users suddenly began transacting in a new currency, and that combining a stablecoin issuer with a big corporation “could lead to an excessive concentration of economic power”. — Liana Baker, Jesse Hamilton and Olga Kharif, (c) 2022 Bloomberg LP