The Diem Association disbanded under regulatory pressure

2022-06-07 0 By

Facebook’s cryptocurrency experiment is a story of what can happen.The Diem Association is winding down under regulatory pressure, less than three years after the digital assets group’s blockbuster launch, the Wall Street Journal reported Wednesday.The involvement of the social network, renamed Meta Platforms by its parent company, turns out to be harmful.This is a missed opportunity to make cryptocurrencies respectable.From the moment Facebook announced the effort in 2019, Diem’s obituary was written.Mark Zuckerberg’s company gathered some of the biggest names in payments, including Visa, PayPal and Stripe, to launch a cryptocurrency called Libra at the time.The group eventually decided to issue a so-called staboin, backed by the U.S. dollar and other currencies, that would facilitate digital payments without the volatility of digital tokens like Bitcoin.But the backlash against Facebook, which was already under global regulatory pressure for its size and failure to police political content, was swift.Some US lawmakers have called on the company to abandon the project because it poses a threat to financial stability.The Fed is also critical.Visa and several other companies left the consortium.Diem sold just $200 million in assets, according to the Wall Street Journal.Diem’s failure is important because there is still no effective regulatory framework to regulate cryptocurrencies.Digital tokens have attracted widespread speculative interest, but offer no protection for investors and do not enforce money-laundering rules piecemeal.While regulators have suggested regulating stablecoin issuers such as banks, there are currently no rules on digital asset liquidity and risk management.Take stabocoin, a rival such as Tether, which was fined $41m by the CFTC in October for claiming that its tokens were backed entirely by fiat assets.From 2016 to 2018, Tether’s reserves supported less than 30 percent of coins in circulation, the CFTC said.Perhaps central banks, many of which have since launched their own digital currency schemes, will never let private companies challenge their authority.But it’s also possible that tech companies like Microsoft, which enjoy a higher reputation among policymakers, could turn DiEM-like dreams into reality.Facebook’s experience may rule that out, at least for now.This is a missed opportunity for cryptocurrencies.