Facebook's cryptocurrency project, Diem, has officially called it quits. The company recently announced that it would "begin the process of winding down" after facing regulatory backlash from the US Federal Reserve. Diem's assets will be sold to Silvergate Bank, a crypto-focused bank that was also a partner on the project.

The Diem Project was created by Meta and was controlled by many of the company's top executives. They were working on a stablecoin pegged to the US dollar and meant to be an alternative to other volatile cryptocurrencies in the market. Meta users were suggested to use the token on multiple Meta-controlled apps for transactional purposes.

However, the project went through many iterations, and it even changed its name from Libra to Diem. In hindsight, one may say that the project was doomed in many ways. There was a lack of public participation, multiple rebranding attempts, and several high-profile staff departures. Still, the final nail in the coffin was the scrutiny from the US Congress and its lawmakers.

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Regulators and economists raised red flags throughout the project's tenure. One concern they had was the effects of the company's social media network. It could dramatically increase the stablecoin's circulation, potentially even undermining the fiat currencies of weak economies.

Some regulators were concerned about Meta's advertising power on their social media and how it could be pervasive enough to push people into using Diem. Not to mention Meta's history of unscrupulous practises when it came to safeguarding its user's privacy.

What's strange was that, even with its enormous ambition, the heads of the project did not communicate with Congress and legislators. This was an anomaly in the crypto space. Upcoming crypto projects usually engage in constant communication with legislators and regulatory agencies.

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"I think it had significant problems right from the start," said Mary Beth Buchanan, a former US Attorney and Chief Legal Officer at crypto intelligence firm Merkle Science. "When

These factors led to the project being in gridlock with Congress and regulatory agencies. You could say it was stuck in regulatory limbo. Diem CEO Stuart Levey revealed that the decision to sell came after "it became clear from our dialogue with federal regulators that the project could not move ahead".

The project then was sold to Silvergate Bank for $182 million. Silvergate paid $132 million out of the $182 million total purchase price in stock. Now the bank is planning to use the bones of Diem to build its own stablecoin payment service that will be unveiled shortly.

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(Edited by : Jomy Jos Pullokaran)

First Published:Feb 3, 2022 6:55 PM IST