The inside story of how Meta’s (Facebook) crypto hopes unraveled
Some congressmen wrote members of the the Libra association to warn them of increased congressional scrutiny if they continued with the crypto project.
A few weeks back, the news became public that Facebook stablecoin project Diem was finally shutting down. This came years after the initial Libra project was conceived.
According to Financial Times, the one stumbling block that eventually prevented the project was its connection to Facebook.
How it all began
David Marcus and Morgan Beller conceived the original idea for the cryptocurrency project. Marcus was a fintech veteran who was one-time president of PayPal before moving to Facebook.
On the other hand, the younger Beller was passionate about blockchain technology and a partner at Andreessen Horowitz before joining the social media giant in 2017.
Together, the two started working on the project in 2018 and codenamed it Libra. The original idea was to make Libra a decentralized currency like Bitcoin built on open source technology.
But they also intended to back it with a reserve of low-risk assets, hence becoming a stablecoin. At the time, stablecoins were not as popular as they are today.
In order to ensure the decentralization of the currency, Marcus and Beller created a non-profit called Libra Association with Facebook as one of the members. They based the non-profit in Switzerland and pitched joining the association to other corporations.
But Facebook wasn’t only an ordinary member. It also got the right to build a digital wallet for the coin. This, among other reasons, proved to be behind the project’s eventual failure as regulators considered it an advantage.
Facebook’s regulatory issue was a stumbling block
The previous history of Facebook with regulators became the stumbling block. Over the years, due to repeated scandals involving users’ data, Facebook has become notorious. This reputation haunted everything the company associated with, including a cryptocurrency project.
The political backlash that followed the official announcement of the project in July 2019 made sure it ended just as it began. It was clear that many in government had concerns, and a POTUS tweet was just one of those.
Marcus appeared before congress to convince them about the project but a bipartisan opinion already formed against it.
The backlash, among other reasons, led to some members of the association quitting, starting with PayPal.
Some senators further wrote other payment members in the Libra association including MasterCard, Visa, and Stripe, warning of increased Congressional scrutiny if they remained in the Libra association. This was enough to make those companies quit.
From there, the road became bumpy and led to nowhere. Not even changing the name to Diem, bringing in former regulators such Stuart Levey and Steve Bunnel, or reducing the project’s scope could placate authorities. Both the Feds and Treasury Department said no eventually.
However, beyond its association with Facebook, Diem was a solid stablecoin project and more compliant than the stablecoins in the market. Thus, it was a case of coming too early and being associated with a perceived bad guy that ruined its chances.