“100% Political Kill”: Ex-Diem CEO on the Death of Meta’s Stablecoin

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As a researcher who has closely followed the crypto industry for years, I find the demise of Diem to be a fascinating case study that underscores the complexities and challenges inherent in navigating the intersection of technology, finance, and politics. Having immigrated to the United States and becoming a proud citizen, I’ve always admired its rule of law and value system. However, witnessing the political pressures exerted on Diem, despite its well-intentioned goals, has been disheartening.

Lately, fresh information has emerged from David Marcus, one of the project’s co-founders who previously led Meta’s blockchain unit. He suggests that the project’s termination was more of a “political assassination” rather than a natural end.

Launched in June 2019, Libra aimed to develop a decentralized payment system supported by a stablecoin tied to a collection of international currencies. This initiative garnered early backing from financial heavyweights like Visa, MasterCard, and PayPal. Yet, barely a few weeks after its unveiling, it encountered intense criticism.

Executive members from Meta, including Marcus, were called before two congressional committees, the Senate Banking Committee and the House Financial Services Committee, to discuss worries about possible dangers to monetary stability, privacy issues, and Facebook’s contentious history. Legislators expressed concern that the project might weaken national currencies and give Meta excessive control over global financial systems.

Originally, strong regulatory pushback caused several significant collaborators to pull out and the project was renamed Diem as an effort to separate it from Facebook’s damaged image. Even though the project scaled back its goals to concentrate on a stablecoin backed by the US dollar, it still encountered numerous ongoing difficulties.

Immense Political Pressure

Marcus has revealed that, despite making considerable attempts to tackle regulatory issues by narrowing down Diem’s focus and moving its operations from Switzerland to the U.S., political obstacles turned out to be too strong to overcome.

Marcus expressed on November 30th through a social media post that it was hard to accept, not because we had failed, but because America, the nation I chose as my home due to its legal system and values, acted in such a manner for political purposes.

As per Marcus’ account, initially, Jerome Powell, the Federal Reserve Chair, seemed amenable to the project progressing in a restricted manner. However, it is said that Janet Yellen, the U.S. Treasury Secretary, intervened and cautioned Powell that backing Diem could result in a political disaster. Shortly after this warning, reports suggest that the Federal Reserve put pressure on participating banks to withdraw their support, ultimately leading to the project’s demise.

Attempts to Pivot and Final Collapse

The Diem Association joined forces with Silvergate Capital with the goal of introducing a US dollar-backed stablecoin. However, as regulatory oversight intensified, they tried to launch it. In October 2021, U.S. Senators sent an open letter urging Meta (the company behind Facebook) to halt its Novi digital wallet trial run because of lingering regulatory and consumer protection concerns, which effectively thwarted their endeavors.

In January 2022, the Diem Association decided to sell its assets to Silvergate, effectively bringing an end to the project. Despite efforts to address concerns related to financial crime and privacy, the then-CEO, Stuart Levey, attributed this decision primarily to regulatory challenges.

Previously associated Diem team members have moved onto various blockchain endeavors, such as Layer 1 platforms Aptos and Sui. Meanwhile, Marcus has pivoted towards Lightspark, a company harnessing the power of Bitcoin‘s Lightning Network. Reflecting on their journey, Marcus underscored the importance for future initiatives to establish themselves on impartial, decentralized networks like Bitcoin to steer clear of similar challenges.

The fall of Diem underscores the complex interplay between politics, policy-making, and technological innovation within the cryptocurrency sector. This scenario offers a cautionary tale for businesses navigating U.S. regulations, emphasizing the importance of transparency, trust, and timely dialogue with regulatory authorities.

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2024-12-02 18:56