The Facebook-backed Diem association has moved its operational base to the United States from Switzerland. The crypto project, which envisages a US-dollar backed stablecoin, had earlier applied for a payment system license with FINMA, the Swiss regulator.
“While our plans take the project fully within the US regulatory perimeter and no longer require a license from FINMA, the project has benefited greatly from the intensive licensing process in Switzerland and the constructive feedback from FINMA and more than two dozen other regulatory authorities from around the world convened by FINMA to consider the project,” stated Stuart Levey, Diem’s chief executive officer, in a press release.
Diem association also announced a partnership with La Jolla, Calif. – based bank Silvergate Corp., a provider of services to several prominent crypto companies. The partnership means that Silvergate will become an exclusive issuer of the Diem stablecoin and will manage reserves backing the stablecoin. The Diem association is reported to be launching a single stablecoin backed by the US dollar later this year.
When it was launched in 2019, Facebook’s crypto project was known as Libra and boasted a rolodex of top names across industries, from payment processing to retailers, as partners. Its whitepaper had an ambitious blueprint for a digital currency that worked across borders and leveraged the world’s largest social network’s reach.
Subsequent skirmishes with regulators and antagonistic lawmakers fed up of Facebook’s past record on user privacy have curtailed those ambitions. The recent set of announcements significantly reduce its geographical footprint and scope. Several initial partners of Facebook in the venture have left the association and its original plan of a single digital currency underwent iterations to end up in its current form of a stablecoin backed by the US dollar.
In its press release, the Diem association announced that it will register with Diem Networks US as a money services business with the US Department of the Treasury’s Financial Crimes Enforcement Network.
Will it Succeed?
The project still has several question marks associated with it. Its goal is financial inclusion by obviating the need for physical infrastructure like banks to bring the unbanked into the economic system. The idea is to use mobile phones to transfer and receive private currency for services. However, critics have said the project doesn’t solve the main problem: public policy is set in such a way that only banks can access the payment systems and the unbanked are unprofitable for them. Diem’s blockchain is also permissioned, meaning it will be controlled by select partners of the association instead of being public ledger. That raises questions about the motive and economics of a project backed by private players instead of a government agency.