Can Facebook's Diem Seize the Day With Crypto Coin Debut?

Facebook’s cryptocurrency play was back in the news at the end of November with reports that it would finally debut in January, following expected approval by the Swiss Financial Market Supervisory Authority. Since Facebook announced its original crypto plans in June 2019, it's gone through a name change, cycled through members and watered down its ambitions. But concerns remain about Facebook's dominance in yet another industry. Most important, if and when Diem does make its debut next month, it will do so in the form of a single stablecoin tied to the U.S. dollar. This version is significantly scaled back from original plans to roll out a coin tied to a basket of currencies, as well as stablecoins tied to other single currencies, including the Euro, the Singapore dollar and the U.K. pound. Gartner Research distinguished vp analyst Avivah Litan told Adweek that going this route appeases regulatory resistance, at least temporarily. “Assuming that the regulators are on board, it’s basically like PayPal on blockchain. What they’re doing is benign in terms of the central bank and the threat to currencies," Litan added. "There’s really is no harm here.” She was also skeptical that the basket coin would ever see the light of day, saying, “Regulators don’t care about the valuation of Bitcoin because it’s not managed by a central bank. It’s not the same kind of threat as having Facebook influence the value of your fiat currencies.” Enter Novi and Diem Calibra, Facebook's digital wallet, and Libra, its entry into cryptocurrency, were rechristened as Novi in May and the Diem Association this month, respectively. The latter name change marks “a new day for the project,” according to Diem's announcement. That could signal a fresh start and a new direction for Facebook's crypto plans: Libra came under fire almost immediately. Several Democratic members of the U.S. House Financial Services Committee published an open letter in July 2019 to Facebook’s executives asking them to “immediately agree to a moratorium” on the project, noting, “Facebook is already in the hands of over one-quarter of the world’s population.” Key partners that were already entrenched in the payments sector exited Libra last October to pursue their own initiatives, including eBay, Mastercard, PayPal, Stripe and Visa. As for the name change from Libra to Diem, Litan saw it as “trying to make it politically correct so that Facebook can get away with what it wants to do.” Furlonger added, “The name change is a suggestion that there’s an attempt to at least distance from the original construct. The naming of Facebook is diminished significantly in the new white paper. The move here to be a more independent organization suggests a different tact than was originally the case. Behind the scenes, it’s hard to tell what that means with respect to Facebook and its original thinking.” Gartner Research vice president analyst Christophe Uzureau and distinguished vp David Furlonger wrote in a report published in August 2019, “One may argue that the endgame is not to create a new, profitable, stand-alone venture for Facebook, but rather to collect more data and behavioral insight to power other corporate assets. This would certainly fit with the Trojan Horse argument. But, where does that leave the other members of the network?” The Facebook effect Despite the name change and Facebook’s efforts to paint itself as just one of several partners in the initiative, the timing is curious for an entry into cryptocurrency. At the moment, Facebook is dealing with last week’s lawsuits from the Federal Trade Commission and 48 states over its perceived dominance and anti-competitive behavior in its flagship business of social media. “They have a big fight on their hands,” Raoul Pal, founder and CEO of Global Macro Investor and Real Vision Group, told Adweek. “They have the biggest network in the world attached to it. When you control peoples’ money and you have all of the information on them and can see exactly where it’s spent, that’s extremely powerful.” Digital currencies in general and Diem in particular also drew the attention of the G7—the finance ministries and central banks of Canada, France, Germany, Italy, Japan, the U.K. and the U.S.—last week. U.S. Treasury Secretary Steven Mnuchin said in a statement last week, “There is strong support across the G7 on the need to regulate digital currencies,” and German Federal Minister of Finance and Vice Chancellor Olaf Scholz added in a statement following the G7 meeting, referring to Diem, “A wolf in sheep’s clothing is still a wolf. It is clear to me that Germany and Europe cannot and will not accept its entry into the market while the regulatory risks are not adequately addressed. We must do everything possible to make sure the currency monopoly remains in the hands of states.” Making payments easier for many One potential path to success for Diem that Facebook has amplified is as a facilitator of transactions in markets like India, and in third-world countries, where access to currency in general and the U.S. dollar, in particular, can be tricky. Pal told Adweek, “A lot of people want this to work. It makes payments easier for so many people. It’s not easy to get U.S. dollars in India somewhere. Even if you and I don’t get to see it in the U.S., it makes a difference in third -world countries where they can’t get payment for stuff, can’t send remittances. Getting paid instantaneously in U.S. dollars is extremely powerful.” Litan added, “I don’t think that Facebook had this secret plot to control the currency system. They just want a frictionless experience: They don’t care what currency you’re using.” That said, there are other networks outside of Facebook that are working on solving the same problem. “There are already international remittance systems that do things in real-time in smaller amounts that have been heavily understood from a brand perspective,” Furlonger said, adding that some national governments are working on their own central bank digital payment initiatives, with one being revealed earlier this month by the Bank for International Settlements' Innovation Hub, the Swiss National Bank and financial infrastructure operator SIX. “The original Libra notion was a wakeup call for many of those agencies,” he said. “It’s a very different landscape and a very different feel to the market as a whole.” Another sticking point is that the average customer may not be so au fait with the concept and security of blockchain, either. Furlonger and Uzureau wrote in their August 2019 report, “Telling customers they can trust the solution because it’s based on blockchain technology is not an argument for most consumers, as they have limited awareness of blockchain and may not care about the concept. Additionally, suggesting that the offering is really supported by other payment brands could be confusing to customers.” The next 18 months Either way, under its new guise, we're still far off from the finished product. “The basket approach is going to take a long time to figure out and require a lot more in terms of integration, more maturity in standards, more fungibility, better cohesion among regulators," Furlonger told Adweek. "We’ve seen some discussions, but with regulation, it’s a bit of a glacier.” Furlonger and Uzureau likely captured Facebook’s ultimate goal in their report last year, writing, “By controlling the four business currencies of data, contracts, access and technology, Facebook can use Libra as a catalyst for broader market control.”

Blockchain

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David Cohen

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David Cohen