Facebook: Shutterstock
Since May 2019, the Facebook cryptocurrency has been trying to get off the ground after it first floated ideas for a “Global Coin” or “Facebook Coin.” Then, in June of 2019, Facebook formally announced its “Libra” cryptocurrency project. But now after three years of regulatory and legislative scrutiny, multiple rebranding efforts, and an exodus of key crypto executives, it appears that Facebook (now Meta) faces major obstacles in introducing its cryptocurrency.
Libra: The Coin
In June 2019, Facebook released its first Whitepaper detailing its proposed world cryptocurrency called “Libra.” One of the main problems Libra seeks to address is how much it costs for individuals in developing countries to move money.
In these developing countries, individuals often pay exorbitant transfer charges. Libra was designed to be a cryptocurrency that could be used anywhere in the world to foster more access to “better, cheaper, and open financial services.”
With Libra, consumers could send money to each other as well as pay for goods and services using the Facebook-backed digital currency instead of their local currency.
Facebook’s Libra
According to the original Whitepaper, Libra tokens were to be monitored and kept track of by the not-for-profit Libra Association. The association guarantees that Libra is financially backed by several global currencies and securities. This basket of securities was originally to include the following mix: 50% United States dollar, 18% Euro, 14% Japanese yen, 11% Pound sterling, and 7% Singapore dollar. It was believed that such a mix would bring price stability to Libra.
Calibra: The Digital Wallet
Libra needed a digital wallet to purchase, hold, and manage these tokens. To manage Libra, users would be able to download a digital wallet named Calibra. This wallet allowed users to send this global coin to anyone with a smartphone.
By 2020, Facebook wanted its Calibra wallet to be available in Messenger, WhatsApp, and as a standalone application. The Facebook Whitepaper stated that “almost anybody” in the world with a smartphone will be able to download the digital wallet app. As the world’s largest media platform, Facebook had about 2.5 billion users in 2020.
Libra’s Underlying Technology
The Libra cryptocurrency was conceived to use a form of “centralized” blockchain technology. This technology was different from Bitcoin’s fully decentralized blockchain. With Libra, only members of the Libra Association were able to access the electronic ledger of Libra transactions.
The Libra Association
Rather than have Facebook manage this currency, Facebook established the Libra Association. Libra would be governed by the Libra Association which was an association based in Geneva, Switzerland, and was primarily responsible for developing and operating the payment system with a secure network via blockchain. The founding members of the Libra Association consisted of 28 global companies including major payments providers and tech heavyweights including Visa, Mastercard, Uber, Stripe, and PayPal.
The Libra Association was intended to be a not-for-profit organization, acting independently of any single member organization. The Association is chartered to validate all transactions on the Libra blockchain and also monitors all Libra finances.
Initially, the Libra Association was established to have a governing body called the Libra Association Council. This Council included a representative from each member of the Libra Association, which would vote on policy and operating decisions.
Legislative and Regulatory Headwinds
Opposition to Facebook’s proposed global Libra cryptocurrency initiative was swift. For example, the very same day that the Libra Whitepaper went live, Congresswoman Maxine Waters, (D-CA) Financial Services Committee Chairwoman issued a letter demanding that Facebook “agree to a moratorium on any movement towards creating a cryptocurrency.” Waters cited Facebook’s frequent abuse of privacy data as the basis for this moratorium. This letter also requested that Facebook executives be called before Congress to provide testimony on these issues.
Two weeks later on July 2, 2019, lawmakers went on the further offensive. US lawmakers sent Facebook a letter stating that “it is imperative that Facebook and its partners immediately cease implementation plans” for Libra and its related digital wallet.
One week later while testifying before Congress, Jerome Powell, chairman of the Federal Reserve, testified that the Fed had “serious concerns” as to how Libra would deal with “money laundering, consumer protection, and financial stability.” Libra “cannot go forward,” Powell testified, unless all legal and regulatory issues have been fully resolved.
In response to this initial Congressional and regulatory pushback, Facebook’s then chief of the Libra project David Marcus testified that Facebook would not launch the Libra currency until Facebook had “fully addressed regulatory concerns and received appropriate approvals.”
In response to this initial Congressional and regulatory pushback, Facebook’s then chief of the Libra project David Marcus testified that Facebook would not launch the Libra currency until Facebook had “fully addressed regulatory concerns and received appropriate approvals.”
David Marcus, Head of Libra: Getty Images
Not only did Libra receive immediate pushback in the US but it also received condemnations from European regulators. For example, French Finance Minister Bruno Le Maire stated that Libra represented an “unacceptable” challenge to state sovereignty and he also suggested political motives were behind Facebook’s project.
Le Maire has previously said France would prevent Libra’s use in the EU. Germany’s finance minister, Olaf Scholz agreed. Both countries eventually issued a joint statement affirming that “no private entity can claim monetary power, which is inherent to the sovereignty of nations”.
Faced with growing domestic and international regulatory resistance, some of the early Libra Association participants withdrew from the Libra Association. For example, by October 2019 companies leaving the Libra Association included: PayPal, eBay, Mastercard, Stripe, Visa, Mercado Pago, and Booking Holdings.
Facebook Cryptocurrency Major Rebranding Efforts
In a multifront effort to repackage Libra and Facebook’s corporate entity, rebranding efforts were initiated. First, in May of 2020, Facebook changed the name of its digital wallet from Calibra to Novi.
Facebook digital wallet Novi
It also sought to strengthen the wallet’s security features. For example, the rebranded Novi would require verification with a government-issued ID. In addition, the Novi wallet application would now have certain “fraud protections” built-in.
Facebook stated that an introductory version of Novi would be introduced in select countries once an acceptable cryptocurrency is available and it has secured the necessary licenses and approval. Novi would allow users to transfer money through an application or Facebook Messenger and WhatsApp.
Second, Facebook announced that it was rebranding Libra to now be called Diem. The Chief Executive of the Libra Association stated that the basis for this rebranding effort was to distance itself from an “earlier iteration” of the crypto project, one that “received a difficult reception . . . from regulators and other stakeholders.”
Importantly and to appease the US policymakers and regulators, rather than include the basket of different currencies underlying the Libra coin, Diem would include a cryptocurrency that was backed one-for-one by the US dollar.
Third, the Libra Association based in Geneva, Switzerland was going to be rebranded as the Diem Association. As of December 2020, and now based in California, the Diem Association had 27 members. Shortly thereafter, Facebook withdrew its plans for a Swiss license, stating that it now wanted to concentrate first on the US market.
Meta New Logo
And then finally, Facebook rebranded its corporate identity as Meta. As Mark Zuckerberg explained in his Founders Letter in late 2021, this change “reflect[s] who we are and the future we hope to build, I’m proud to share that our company is now Meta.”
Facebook’s multiple rebranding efforts set the stage for its US-based product introductions.
Meta Novi Introduction
In mid-October, Facebook (as it was still then called) announced a limited launch of its digital Novi wallet. Limited to 200,000 users, the launch was part of the Novi wallet pilot program focusing on the remittance market between the US and Guatemala.
In partnership with Coinbase, the pilot program allowed Novi users to securely and instantly send and receive money. Rather than use its own cryptocurrency Diem, Novi uses the Paxos Dollar (PAX) which is a stablecoin. The Paxos Dollar is structured on the Ethereum (ETH) blockchain and is pegged to the US dollar. Importantly, Paxos is regulated by the New York State Department of Financial Services.
Senators’ Responsive Letter to Zuckerberg
US legislators were not too happy with the US Novi limited introduction and they were quick to condemn Facebook’s actions. US legislators sent Facebook CEO Zuckerberg a letter only hours after Facebook launched Novi.
In their letter, Sens. Brian Schatz (D-HI), Sherrod Brown (D-OH), Elizabeth Warren (D-MA), and others wrote, “Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape – not only for Diem specifically, but also for stablecoins in general.”
Exodus of Diem High Ranking Executives
Aside from members leaving the Libra/Diem Association, Meta is now seeing key executives exiting the Novi/Diem project. For example, in September of this year, Eric Nakagawa, who was in charge of Novi’s open-source strategy, left to join cLabs. Others soon followed.
Just last month, Diem’s top crypto executive David Marcus announced that he was leaving by the end of this year. Marcus announced on Twitter that he was exiting Meta because “my entrepreneurial DNA has been nudging me for too many mornings in a row to continue ignoring it.”
Marcus, who joined Facebook in 2014, spent the last few years building Novi and is a co-founder of Diem.
And now Marcus is the second Novi co-founder to leave in just the last two years. Morgan Beller, another co-founder, left the Novi development team to become a partner at NFX, a venture capital firm.
Stephane Kasriel who joined Meta in August 2020, will take over the lead role of Novi and other related payment projects at Meta.
Recently, Checkout.com lured away Meta executive Meron Colbeci as its chief product officer. With Meta, Colbeci served as the Novi director of product management.
And the former consumer product legal counsel for Novi Rob Collier announced that he was leaving. While at Novi, Collier managed a product team that worked to launch Novi’s crypto wallet.
First US Novi Introduction
Meta’s WhatsApp and Novi
But things continue at Meta and with Novi. For example, just last week Meta rolled out the Novi wallet in WhatsApp in the US. Stephane Kasriel, the newly appointed head of Novi, tweeted that this was just an “entry point” and that Meta was “very early“ in the Novi pilot.
Where Does Meta and the Facebook Cryptocurrency Go From Here?
Meta faces some real challenges in getting regulatory approval of its Diem cryptocurrency (whatever that might be).
First, Meta must try to attract new members to the Diem Association as it has now lost more than 20% of its original members. Meta originally wanted to have at least 100 members in this association, and it is currently well short of this target.
Second, Meta must cope with continued scrutiny, not only from US policymakers and regulators but also from the global financial community. This is particularly important given Facebook’s (Meta’s) history of mishandling of privacy and data security issues.
Finally, Meta must stop the brain drain of losing its most experienced crypto executives from the Novi and Diem project teams.
Conclusion
If Meta can see its way through these mounting challenges, there might be some type of Diem cryptocurrency on the horizon. However, it is highly unlikely that Diem (if some form of coin is eventually adopted and approved) will be anything like the far-reaching global cryptocurrency that Facebook initially outlined in its 2019 Whitepaper. Rather, if anything, the Diem cryptocurrency will be some type of stablecoin that is tightly regulated and passes scrutiny from US policymakers and regulators. Similar to the Paxos stablecoin that Meta uses in its current Novi wallet.