Regulatory pressure sees Facebook’s stablecoin collapse

Diem, Facebook’s stablecoin project, appears to be on the brink of a sell-off amid increasing pressure from EU and US policymakers and regulators. Stablecoins are a type of cryptocurrency pegged to Fiat currency, in this case the USD, and are typically used to buy and sell other crypto. Diem was launched in 2019 by Facebook in their attempt to revolutionise digital payments, and has struggled from its early days. Diem is supported by 25 businesses and non-profit groups, but initially had the support and buy-in from several high-profile founding members, including Mastercard, Vodafone and Pay-Pal. These quit the project within the first 12 months as regulatory investigations accrued. 

The main concerns from regulators appear to be around money laundering and monetary stability, with many citing the behemoth size of Facebook as a destabilizing factor. With 2.9 billion monthly users, regulators feared monetary sovereignty being undermined.

In addition, in recent years Facebook has faced significant political backlash as a company. In certain parts of the world, the platform was being used to promote right-wing specific agendas with Facebook accepting advertising money from political parties. In other areas, it was accused of spreading misinformation and not taking enough responsibility for the content it hosted.

Diem said in May that an affiliate of the firm, Silvergate Bank, was to be the issuer of the Diem USD stablecoin. After a lengthy discussions between Diem and regulators, Federal Reserve officials finally told Silvergate in summer 2021 that it was uneasy with the plan and couldn’t assure Silvergate that it would allow the activity.

Without a green light from the regulator, Silvergate was left unable to issue the new asset with confidence the Federal Reserve wouldn’t crack down, and so the Diem effort had no coin. It is now reported that Silvergate Capital will buy Diem for $200 million