Facebook has launched the long-awaited pilot programme of its digital wallet, Novi, in Guatemala and the US to “test core feature functions.” Novi is Facebook’s digital wallet service that will allow users to transfer and receive money transnationally instantly and without any additional fees. The wallet is able to do so by using the Pax Dollar (USDP), an established stablecoin.

But US senators have written to Facebook, asking it to immediately discontinue Novi and not bring any such projects forward in the future.

The letter from US Democrat senators came just hours after the company announced the launch.

What is Novi?

Novi will allow users to transact instantly and will not charge any additional fee. Pax Dollar, like other stablecoins, is a form of a cryptocurrency token that is paired to an underlying asset or value. The stablecoin is paired 1:1 to the US dollar and issued by Paxos, a New York-based financial services company, and is regulated by the New York State Department of Financial Services (NYDFS).

Facebook has said it would be using Coinbase as the custodian of user funds using the latter’s custody platform.

Novi will enable users to quickly transfer US dollars and receive an equivalent value of PAX dollars in return, which are held securely by Coinbase. The cryptocurrency can then be instantly transferred to the recipient without any additional fee. The receiver can then easily convert the PAX dollars back to US dollars or their local currency without any value discrepancy.

The process is instant, secure and without any fees, important features for securing a remittance corridor between a country like Guatemala, which lacks proper financial infrastructure in many places.

Why the pushback against Novi?

The announcement of Facebook’s new project has come with a pushback from a group of US Democrat senators, who demanded that Novi be discontinued with immediate effect.

“Given the scope of the scandals surrounding your company, we write to voice our strongest opposition to Facebook’s revived effort to launch a cryptocurrency and digital wallet, now branded ‘Diem’ and ‘Novi,’ respectively,” read their letter.

The letter comes at a time when Facebook has been embroiled in controversy after the explosive leaks of over 10,000 pages by a whistleblower highlighted the inability of the company to properly monitor its own products as profits remain a priority.

“Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient,” added the letter.

But the group of senators has also pushed back against the digital giant’s new service because of its use of cryptocurrency.

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“Unfortunately, Facebook’s decision to pursue a digital currency and payments network is just one more example of the company “moving fast and breaking things” (and in too many cases, misleading Congress in order to do so),” read the letter.

Facebook’s response

Facebook, in its official note, had already addressed many of the concerns that the senators have brought up while Diem had issued its own response as well. The social media giant had said that Novi and Facebook accounts are kept separately to ensure privacy and protection and added that the wallet was built to be completely secure.

“We know privacy is top of mind for Novi customers, so it will always be top of mind for us. We prioritise the security and privacy of people’s information by encrypting sensitive financial information … If we determine a transaction is unauthorised, we provide a full refund back to a person’s Novi balance. People’s Novi accounts and Facebook accounts are separate,” the company’s statement read.

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Diem for its part highlighted that it was not a part of Facebook, but the latter was just one of two dozen members of the Diem Association. The association is a network of “merchants, payment service providers, social impact partners, and other entities” that are “dedicated to building a blockchain-based payment system that supports financial innovation, inclusion, and integrity.”

“Diem welcomes the opportunity to engage with members of Congress on the robust controls we have spent two years building into our payment system. Unfortunately, today's letter from lawmakers to Facebook misunderstands the relationship between Diem and Facebook. Diem is not Facebook. We are an independent organisation, and Facebook's Novi is just one of more than two dozen members of the Diem Association. Novi's pilot with Paxos is unrelated to Diem,” the Diem Network stated in its statement.

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(Edited by : Shoma Bhattacharjee)