Facebook-backed Diem aims to launch digital currency pilot in 2021


Facebook wanted to revolutionize finance with a global digital currency — then came the regulators.

First proposed in June 2019 with the name libra, the token was initially intended to be a universal currency tied to a basket of sovereign currencies such as the U.S. dollar and the euro.

But after facing strong opposition from regulators around the world, the organization overseeing the project lost major backers including Visa and Mastercard. The group eventually watered down its plans, opting for multiple “stablecoins” backed one-to-one by different government-backed currencies, as well as one multi-currency coin.

Now known as diem, the Facebook-backed digital coin is expected to launch later this year, albeit in a much more limited form. When it finally arrives, diem won’t come with the same fanfare and controversy of the original idea envisioned by the social media giant nearly two years ago.

Stablecoin pilot

“It was such a stunning challenge to the international order, in that the backlash was just really powerful,” Casey said.

One big concern, according to Casey, was that diem posed a threat to the dominance of the U.S. dollar. Two months after Facebook unveiled libra, former Bank of England Governor Mark Carney proposed a new digital currency based on a global basket of goods that could diminish the dollar’s status as the world’s reserve currency.

Diem’s technology has “changed dramatically over the past year and a half from a naive blockchain to a very sophisticated blockchain that you can see is trying to answer some of the questions that regulators had,” said Ran Goldi, CEO of Digital Assets Group, which is building infrastructure to let merchants accept diem as a method of payment.

“I think it will get past the gates this year,” said Michael Gronager, CEO of blockchain analysis firm Chainalysis. “It would be a missed opportunity if not.”

“At the same time,” Gronager added, “it’s one of multiple initiatives happening and it’s similar to Tesla buying $1.5 billion in crypto. This is just part of a big movement, not a new movement.

Indeed, diem — or libra — may have been the big crypto story of 2019. But bitcoin and cryptocurrencies have gathered significant momentum over the past year, with bitcoin recently surging to a new all-time high above $60,000 and major firms like Tesla and Square making big bets on the digital coin. Meanwhile, crypto exchange Coinbase went public in a landmark direct listing on the Nasdaq.

What’s next for diem?

At the same time, Diem has gone through a complete makeover, rebranding from Libra earlier this year and beefing up its leadership team with big hires like CEO Stuart Levey, who was formerly HSBC’s chief legal officer.

Diem is now in talks with Swiss financial regulators to secure a payment license, a crucial step that would place the organization further along the path toward getting its digital currency project off the ground.

“A big step of our dialogue with regulators has been a phased approach to launch,” Christian Catalini, Diem’s chief economist, told CNBC’s Joumanna Bercetche last month.

“We are going to be phasing in different functionalities and use cases, applications in different areas,” he said, adding that members — both large and small — would have to undergo rigorous anti-money laundering checks.

“Once we get the green light, we will start experimenting with a small number of users and a small number of players,” Catalini said. The goal would be to ensure that the technology and reserve system operate as expected, he added.

And though it’s starting with a limited pilot, the group plans to eventually bring in merchants and other partners. It is staying tight-lipped on which ones, for now.

‘Network effect’

“What you get with an institution like Facebook backing a stablecoin is much better distribution,” Gronager said. “You can put it into apps, add it to a lot other places and I think that will be strong.”

“We’ll see when it launches how it’s going to play out but already today a lot of the interest in crypto is also speculative,” he added. “It will basically enable more people to easily get into crypto.”

But this also brings with it concerns around users’ data, an issue that has clouded the project due to Facebook’s history of privacy scandals. For its part, Diem says it takes privacy “very seriously.”

“Diem itself will not have private information about the customers,” said Catalini. “Some of our members have made commitments with regards to data separation between social and financial data.”

Nevertheless, one thing diem has achieved is a global race among central banks to figure out their own digital money strategy. The People’s Bank of China is leading the way, trialing a digital version of the yuan in a number of cities, while Britain’s central bank is exploring whether or not to issue its own digital currency. And some experts say we shouldn’t count out diem just yet.

“The story of digital money in the 2020s will be the growth of tokenized money,” a team of Citi analysts led by Ronit Ghose, global head of banks research, wrote in a research note last week.

“Central banks … and Big Tech … alongside wider adoption of cryptocurrency, are building new payment formats and rails,” Citi analysts wrote. “Stablecoins such as Diem could benefit from the huge network effects of their Big Tech sponsors.”



Source link