The controversial cryptocurrency project that Mark Zuckerberg once championed in front of Congress was crumbling under regulatory pressure, so Diem Association, the consortium of venture capital firms and technology companies founded in 2019 to develop Meta’s payment network project, will sell its technology assets to Silvergate Capital, a financial institution focused on the world of digital currencies. The deal, according to an article by The Wall Street Journal, is valued at about US$200 million.
In 2019, when Meta-owned Facebook first unveiled the idea for its stable digital currencies aimed at revolutionizing global financial services, they did so in collaboration with dozens of other companies. But the consortium was not enough to shield the project from global regulatory scrutiny.
After Zuckerberg was called to testify, some partners abandoned the project and its name was changed to Diem. Diem’s ambitions were scaled back and its founder, David Marcus, left Meta last year. The partnership struck a deal with Silvergate Capital Corp. to issue Diem, but resistance from the US Federal Reserve dealt the final blow to the effort.
Diem announced in May that a subsidiary of the company, Silvergate Bank, would be the issuer of the stablecoin Diem USD, a type of cryptocurrency pegged to the US dollar that is typically used to buy and sell other digital tokens.
After a long back-and-forth between Diem advocates and regulators, Fed officials finally told Silvergate last summer that the agency was not comfortable with the plan and could not assure the bank that it would allow such activity.
Meta owns about a third of the company and it is unclear which companies, besides Meta, ended up investing in the initiative. Diem’s website shows that its partners include venture capital firms Andreessen Horowitz, Union Square Ventures, Ribbit Capital and Thrive Capital, as well as Singapore state investor Temasek Holdings Pte. Its website also lists cryptocurrency-focused companies such as Coinbase Global Inc. and others such as ride-hailing firm Uber Technologies Inc. and commerce platform Shopify Inc.
Issuers of stable coins must be regulated banks if the tokens are to be used as a means of buying and selling things, so the regulators’ group said it feared what could happen if a vast network of users of a technology company suddenly began transacting in a new currency.
