A Humble Homecoming

Libra—er, sorry, Diem—is coming home to the United States, a bit bruised but also a bit wiser than when it left. Bruised but unbowed, the Facebook-inspired blockchain initiative announced in May it is quitting Switzerland and linking up with La Jolla, Calif.-based Silvergate Bank as it plots the next stage of its evolution.

The controversy surrounding Diem has been so intense—and its maneuverings to please multiple governments and regulatory bodies so serpentine—that it’s easy to forget the project is a mere 2 years old. It emerged in the early summer of 2019 with backing from Facebook and a panoply of payments and finance companies in an effort to create a cryptocurrency and wallet that could bring digital currency to everyday people around the world.

It was a noble thought, but it was also political poison. Facebook was already struggling on Capitol Hill and elsewhere with trust issues in its social-media networks. Now, a new cryptocurrency venture hatched by that company along with powerful payments networks like Visa and Mastercard drew withering criticism from skeptical governments and central bankers worldwide.

Before long, Visa, Mastercard, and number of other original backers had abandoned ship. The Libra venture decamped to Geneva and began adopting various course changes trying to please the Swiss Financial Markets Authority (FINMA) and other national banking authorities.

It was time for a new name to go along with a new set of operating principles. But the authorities behind the venture didn’t drop their affinity for Latin, rechristening the association “Diem” (or “day”). The venture soon adopted a single-currency stablecoin approach to avoid the wild swings in value that plague unmoored cryptos and said it would adhere to a stronger compliance regime.

Now Diem is coming to America, claiming 26 members, up from 21 a year ago. Several big names remain behind the project, including Coinbase, Lyft, Shopify, and Uber. Facebook remains involved, too, through its Novi wallet technology.

The new factor in the mix is Silvergate, a member of the Federal Reserve. It will exclusively issue a new stablecoin tethered to the U.S. dollar and manage its reserve. Diem Networks US will register as a money-services business with the Treasury Department’s Financial Crimes Enforcement Network. At the same time, Diem is withdrawing its application to FINMA for a payments-system license.

What happens next is anybody’s guess. Despite the turmoil of its early months, the venture has retained the backing of some powerful corporations and payments players. And the pivot to a USD coin—in concert with an established banking authority—can only help in the effort to placate regulators.

So bon voyage, Diem. Or, more appropriately, Carpe Diem!

—John Stewart, Editor, john@digitaltransactions.net