U.S. and European regulators might have just driven a stake through the heart of Facebook’s bid to create its own payment system.
The payment project, called Diem, is in exploratory talks to sell its assets after policymakers across the globe stalled its launch, according to media reports. One person briefed on the negotiations confirmed sale talks to POLITICO.
Sale negotiations are far from concluded and there’s a small chance the project might yet be salvaged, the people said. Bloomberg first reported the negotiations Wednesday. The Wall Street Journal later said Diem will sell its technology to a small lender in California for about $200 million.
Facebook announced Diem in the summer of 2019, then known as Libra, in partnership with 25 other companies such as Uber, Spotify and crypto exchange Coinbase.
The payment system would come with a cryptocurrency, known as a stablecoin, a digital asset tied to a reserve of currencies or financial products to preserve price stability.
Policymakers, especially in Europe, saw the project as a challenge to monetary sovereignty given Facebook’s global reach of 2.9 billion monthly users who would eventually gain access to Diem.
The EU’s executive arm introduced a bill a year later for the markets in crypto assets (MiCA) with strict investor safeguards and guarantees that users could get their money back. Diem has been banned from operating in Europe until MiCA’s rules are in force, which is expected in 2024.
Diem abandoned its Swiss headquarters in May 2021 and set up shop in the U.S. in hopes of launching there, but that didn’t make life easier.
Diem had aimed to partner with a Federal Reserve-regulated bank, Silvergate, which would issue the token, tied to the value of the U.S. dollar. Last July, however, the firms were informed that neither the Fed nor the Treasury Department were comfortable blessing the project, according to people familiar with the matter.
The government’s move to essentially put the project on ice stemmed in part from the ongoing effort at the time by the U.S. financial agencies to draft a report that would lay out their vision for a regulatory framework for stablecoins, the people said.
But one of them also pointed to reasoning ultimately included in the final report: Facebook’s business model was the biggest problem.
“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” the report said. “These policy concerns are analogous to those traditionally associated with the mixing of banking and commerce, such as advantages in accessing credit or using data to market or restrict access to products.”
“This combination could have detrimental effects on competition and lead to market concentration in sectors of the real economy,” it concluded.
Diem and Meta declined to offer comment.
Additional reporting from Zach Warmbrodt and Sam Sutton in Washington.