Meta's (FB) Diem Project Is Reportedly Shutting Down

Meta Platform, Inc.'s (FB) Diem stablecoin project may be shuttering. According to a Bloomberg report, the project is searching for a buyer for its intellectual property (IP). The report, which quotes anonymous sources, does not specify contents of Diem's IP portfolio nor the price that a buyer may be willing to pay for it. The company is also assisting engineers from the project with placements.

The report states that pressure from the Federal Reserve, which was uneasy with plans by the project's partner Silvergate Bank Inc. to issue a Diem stablecoin, proved to be the "final blow" for Diem. An official Diem spokesperson told online publication The Verge that the Bloomberg report contained "some factual errors."

Diem's Doomed Destiny

When it was first introduced in June 2019, Diem was known as Libra. Its original design envisaged a digital currency, backed by a basket of fiat currencies, available for use in the social media giant's network. 

But the project raised hackles among regulators and economists across the globe. Some argued that the network effects available to Meta through its social network could increase its circulation and undermine fiat currencies of weak economies. Others raised antitrust concerns because Meta could become a crypto leader by forcing advertisers on its social network platform to use Diem in their transactions with the company. Regulators in the United States were also concerned with the cryptocurrency's privacy implications, considering previous infractions by Facebook, Meta's earlier avatar.

Opposition to the project forced Meta to incorporate changes. Calibra, the project's wallet, became Novi, and the project was rechristened to Diem. The project pivoted from its original goal of a global stablecoin to a pared down version of multiple stablecoins backed by local currencies. Meanwhile, there was an exodus of partners from the project. Notable payment processors like Visa Inc. (V) and Mastercard Incorporated (MA), among others, left the project due to its regulatory tangles. There was also significant executive churn in the project that culminated in the departure of David Marcus, the project's lead since inception, last November. Diem was supposed to commence a pilot project in 2021, but there have been no updates. 

What Happens Now? 

Given the project's problems and limited reach, a potential Diem demise is not likely to have major ramifications for the crypto ecosystem. In fact, for all the headlines it generated, Meta's Diem managed to raise awareness about the potential of cryptocurrencies in the financial ecosystem. Even as Diem faced heat from regulators across the world, the price for Bitcoin and crypto markets went into high gear during the pandemic. Stablecoins—which were part of Diem's original design—became a market unto themselves, and governments around the world are exploring their use in an economy.

Meanwhile, regulators are also becoming comfortable with the idea of cryptocurrencies within the existing financial infrastructure. While Meta executives were grilled during their appearance before Congress, legislators have given a comparatively warmer reception to recent outings from the crypto industry.

Diem's shutdown is also not expected have much effect on Meta's business. It owns only about one-third of the project, according to Bloomberg, and the rest is held by its partners, including venture capital firms like Thrive Capital, Union Square Ventures, and Ribbit capital.

Besides, Meta seems to have already moved past its crypto ambitions. Even as the company was launching Libra, it was already preparing itself for an anticipated push into the metaverse. In 2019, when Meta unveiled its stablecoin project, the company racked up a significant number of patents (64% more than the previous year), and most of those were related to augmented reality—a key technology that underpins the entryway to the metaverse. More recently, the company rebranded itself as Meta Platforms in a nod to its metaverse future.