“As we undertook this effort, we actively sought feedback from governments and regulators around the world, and the project evolved substantially and improved as a result,” Diem Association CEO Stuart Levey said in a statement Monday. “Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead. As a result, the best path forward was to sell the Diem Group’s assets, as we have done today to Silvergate.”
Meanwhile, the Federal Reserve and the European Central Bank have started exploring launching their own virtual currencies — work that accelerated in part because of concerns about Diem.
The Diem Association, then known as the Libra Association, first set up headquarters in Switzerland before abandoning those plans in May 2021 and moving to the U.S. The change didn’t make life easier.
Diem had initially aimed to partner with Silvergate, a Federal Reserve-regulated bank, to issue a token tied to the value of the U.S. dollar. Last July, however, the firms were informed that neither the Fed nor the Treasury Department were comfortable blessing the project, according to people familiar with the matter. Silvergate did not respond to requests for comment.
The government’s move to essentially put the project on ice stemmed in part from the ongoing effort at the time by U.S. financial agencies to draft a report that would lay out their vision for regulating stablecoins, the people said.
But Facebook’s business model turned out to be the biggest problem, according to one of the sources familiar with the discussions.
“The combination of a stablecoin issuer or wallet provider and a commercial firm could lead to an excessive concentration of economic power,” U.S. regulators said in the stablecoin report released last year. “These policy concerns are analogous to those traditionally associated with the mixing of banking and commerce, such as advantages in accessing credit or using data to market or restrict access to products.”
“This combination could have detrimental effects on competition and lead to market concentration in sectors of the real economy,” they said.