In June 2019, after years of being under scrutiny for the impact its platforms have on society, Facebook unveiled one of its most ambitious projects yet: a cryptocurrency called Libra, which would be backed by an international consortium of companies. The effort had such lofty goals as providing financial services to the underbanked and extending the social media company’s mission of connecting the world into the burgeoning market for digital money.
Libra was originally slated to launch within less than a year. Two and a half years later, the project — renamed Diem last year — has officially unraveled after various setbacks and regulatory pressure made it impossible to get off the ground.
On Monday, the Facebook-backed Diem Association announced it would dissolve and sell off the intellectual property and other assets related to running its planned cryptocurrency network to Silvergate Capital Corporation, in a deal valued at $182 million. The Diem Association expects to begin “winding down” in the coming weeks, according to the announcement.
The project was dogged from the start by concerns from regulators, lawmakers and other financial services industry watchers about a cryptocurrency run by Facebook (now called Meta), which has struggled to prevent issues such as crime and abuses of user data on its existing platforms. And Diem’s end is a sign that regulators, who have explored a range of ways to crack down on Meta but have yet to act on much of it, do hold some sway over the tech giant and its ability to expand into new product areas.
“Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead,” Diem Association CEO Stuart Levey said in a statement Monday. He added that the group believes its work on Diem will inform future projects that could “deliver the benefits that motivated the Diem Association from the beginning.”
Silvergate plans to use the Diem assets to continue investing in building a stablecoin and a global payments network built on the blockchain, the company said in a statement.
Complicated from the start
When Facebook announced Libra, the plan was to create a universal cryptocurrency that could be accessed by digital wallets — all of which would be built on the blockchain, the technology that underpins other cryptocurrencies such as bitcoin. In theory, that could make it cheaper and easier to send money and pay for things anywhere in the world. Libra, it said, would be backed by a reserve of fiat currencies, such as the dollar and euro, to help prevent the volatility that has plagued other cryptocurrencies.
The structure and governance of the project was complicated from the get-go, which likely didn’t help garner regulatory support. Though Facebook (FB) launched the project, the company said it would not govern Libra and its reserve; that duty would fall to the Switzerland-based Libra Association, a group initially comprised of more than two-dozen companies and nonprofits that included Facebook (FB) but also PayPal (PYPL), Lyft (LYFT) and others. Facebook (FB) started an internal unit called Calibra, which was to create a digital wallet that people could connect to using their Facebook (FB) accounts to send and receive Libra. But it also said other companies would be able to create Libra wallets.
Regulators and lawmakers in the United States and elsewhere were almost immediately suspicious of a new currency that would be available to Facebook’s billions of users at a time when most countries lack the regulatory infrastructure to effectively oversee digital money. They worried that Libra could threaten national currencies like the US dollar and financial markets, and that it could enable cybercrimes and compromise user privacy. They also worried that the project could give Facebook even more power.
“We need to get the message loud and clear to [Facebook CEO and cofounder Mark] Zuckerberg that he’s not a country on his own and he cannot always have it his way,” Rep. Sylvia Garcia, a Texas Democrat, told reporters months after the project was introduced. Some of the Libra Association’s founding partners, including PayPal, Mastercard and Visa, pulled out of the project as regulatory scrutiny ramped up.
Hearings, name changes and a key executive departure
Facebook and members of the Libra Association made efforts to engage with regulators, including in Congressional hearings, and made promises to comply with US anti-money laundering and “know your customer” laws, as banks must.
In his statement Monday, Diem’s Levey said the project had “evolved substantially and improved” as a result of feedback from regulators and governments around the world.
Still, the project dragged on with limited progress. In May 2020, Facebook renamed the Calibra payments unit to “Novi.” About six months later, the Libra Association rebranded as “Diem” to reflect a new, scaled back nature — the coin would now be backed only by the US dollar — and an attempt to distance the effort from Facebook’s early flop in announcing Libra.
In October 2021, Facebook launched a pilot of its Novi digital wallet, but without Diem. Users could instead send and receive a different digital coin. Shortly after, David Marcus, the leader of Novi who had spearheaded the Libra project, left the company to pursue other projects.
Marcus hinted at the role Facebook’s tainted reputation may have played in the project’s demise in a series of tweets Monday.
“We gave our whole hearts, blood, sweat and tears to what I will always call Libra,” Marcus said. “We were mission driven and in it for the right reasons (that remain as valid today as they were then). Here’s to yet another chapter with a maybe more ‘acceptable’ promoter driving the vision forward.”