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After years of effort, Meta’s cryptocurrency initiative has collapsed under the weight of regulatory scrutiny.
The Diem Association, formerly known as the Libra Association, is considering selling its assets and returning money to investors, according to a Bloomberg report. There’s not much to sell, though. The company doesn’t have much in the way of physical assets—just some intellectual property. Perhaps the most valuable part of the association is its engineers. Diem is reportedly looking for a “new home” for them.
Mark Zuckerberg first announced the project in 2019, back when his company was named Facebook and the project was named Libra. He said the cryptocurrency would serve as the foundation for payments within Facebook Messenger and WhatsApp. Zuckerberg managed to convince dozens of companies to become founding members of the backing organization, including Visa, MasterCard, Uber, Lyft, eBay, Spotify, and Andreessen Horowitz.
Libra was to be managed via blockchain, with member organizations processing and verifying transactions. Originally, it was planned to be backed by conventional currencies and other stable assets, making it a so-called stablecoin. (Eventually, though, that scope was reduced to focus on the US dollar alone.)
Almost immediately, Libra ran into headwinds. Regulators questioned the distributed nature of the project and how the company would police activity on the network. Facebook adjusted, making the Libra Association responsible for compliance with financial laws, including money laundering and terrorist financing.
Within months, though, the association lost Visa, MasterCard, Stripe, and eBay from its ranks.
Still, the project soldiered on, making tweaks here and there and changing its name to Diem. Yet, none of those moves addressed the key problem, which was that Libra/Diem concentrated economic power in the hands of member companies.
“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” the President’s Working Group on Financial Markets said in a November report. “This combination could have detrimental effects on competition and lead to market concentration in sectors of the real economy.” In other words, stablecoins like Libra/Diem could create systemic risks to the economy, making companies like Meta/Facebook and its partners too big to fail.
The final nail in the coffin came when Federal Reserve officials said they weren’t sure if they would allow the bank affiliated with the project to issue the stablecoin. Libra/Diem, faced with the specter of a regulatory crackdown, had reached the end of the road.
Meta still owns about a third of the Diem Association, according to the Bloomberg report. Other members were supposed to pay in, though it’s not clear how many—if any—did.