On Jan. 31, Meta, formerly known as Facebook, announced that it was pulling from its stablecoin project, Diem, formerly known as Libra. Intellectual p
On Jan. 31, Meta, formerly known as Facebook, announced that it was pulling from its stablecoin project, Diem, formerly known as Libra. Intellectual property and other assets related to the operations of the Diem Payment Network were to be sold to Silvergate Capital Corporation, essentially meaning the end to Mark Zuckerberg and his corporations’ stablecoin aspirations, at least in their current shape. This also marks the end of a once-groundbreaking initiative that was revealed in 2019 with a promise to bring a global alternative to fiat money to Facebook’s 2-billion-strong user base. Here is how this plan went from the initial announcement to the shutdown.
Phase 1: The white paper
The news of Facebook launching its own digital currency came as a boost of optimism for the social media giant, whose brand in the late 2010s came to be associated with the lack of privacy and ethics, as well as disfunctional governance.
On June 18, 2019, the company released the white paper of its prospective global stablecoin under the name “Libra.” The prospective asset was to be backed by its own blockchain on the operational side and by a reserve of various assets (a basket of bank deposits and short-term government securities) on the financial level.
From the very beginning, Libra didn’t try to pretend to be a decentralized cryptocurrency — its governance mechanism was designed as a consortium (the “Libra Association”) including big-name companies such as Mastercard, PayPal, Visa, Stripe, eBay, Coinbase, Andreessen Horowitz, Uber and others. Facebook itself was “expected to maintain a leadership role.” The social media giant also planned to maintain its influence by running a wallet, Calibra.
The project’s original positioning was to serve not as a speculative asset but as a service payment tool. The minting of new tokens was tied to the process of buyout by “authorized resellers” from among the association’s members.
Initial reception
The white paper received mixed feedback from the crypto community. Some of the industry opinion leaders decried the compromises that Facebook’s project had made in terms of both decentralization and security. Bitcoin (BTC) advocate Andreas Antonopoulos, for example, denied Libra the status of cryptocurrency on the basis that it lacked any of crypto’s fundamental characteristics, such as being public, neutral, censorship-resistant and borderless.
Others, however, preferred to focus not on the actual project’s design but on Libra’s potential effects on global crypto adoption. “Some of the biggest companies in the world are starting to recognize the promise of cryptocurrency and see its potential for changing the way consumers and businesses interact globally,” said Tron founder and CEO Justin Sun at the time.
But perhaps the most important thing about the Libra project was its potential to sidestep both existing crypto and fiat currencies alike — not by the virtue of its technical or design superiority but solely due to the network effects of having over 2 billion users on board from day one.
As Ross Buckley, a digital economy expert and professor at the University of New South Wales, warned in his paper, “Libra is perhaps the ultimate example of something that is highly likely to move from ‘too small to care’ to ‘too big to fail’ in a very short period of time […] This is an alternative money.” Buckley surely wasn’t alone in his fears — the obviousness of Libra’s inherent power predestined the enormous pressure it would get from the regulators.
Phase 2: Regulatory pushback
It took the United States Senate less than a month to get Libra co-creator David Marcus to testify at a special hearing, where the Facebook executive was exposed to a fervent grilling. Notably, it was not only Senator Sherrod Brown but also his perpetual opponent Senator Pat Toomey, who bombarded Marcus with hard questions (although Toomey also called not to “strangle the baby in the crib”). The news about Facebook’s private currency hadn’t gone unnoticed even by the then-President Donald Trump, who reacted in his signature expressive manner:
If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.
The pushback was not confined to the United States. In September 2019, French Finance Minister Bruno Le Maire declared that his country and the whole of Europe wouldn’t tolerate Facebook’s new project because the “monetary sovereignty of states is at stake.” Weeks later, the Bank of England issued a warning that, for it to become legal in the United Kingdom, Libra would have to meet all the necessary standards of traditional banking compliance.
What followed these statements was the first wave of backouts from some of the Libra Association’s founding members. With such companies as PayPal, Visa, Mastercard, eBay and…
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