Defectum ad carpe diem: the failure of Meta’s initial Crypto venture

Meta Platforms Inc. has been at the centrepiece of discussion for FinTech and Crypto since it announced rebranding in October 2021. The potential and excitement surrounding the Metaverse have spilt over to many large names such as Disney, Adidas and even JP Morgan, all exploring the possibilities of the Metaverse. Metaverse Cryptocurrencies have also received high attraction, such as Sandbox and Decentraland, and a plethora of NFT projects reaching into the multi-billion USD valuations in the past six months. However, this excitement has overshadowed the first Crypto venture by Meta. The Diem Association (originally known as Libra) was launched in 2019, but in January 2022 Meta announced that it was preparing to sell off all of Diem’s assets as the project was liquidated. Why did this project fail? As the future seems bright for Meta’s projects, Diem is being swept under the rug, a deep dive into the first hurdle.

Diem’s mission is, “to build a trusted and innovative financial network and innovative financial network that empowers people and business around the world” an exciting prospect that has now been abandoned. Originally, Diem wasn’t Meta’s direct Cryptocurrency, rather they helped co-found the Libra Association. Libra would act as in essence Meta’s (originally Facebook) virtual online bank – to try and help people who didn’t own bank accounts to facilitate the ability of payments in many countries whereby developed monetary systems were still not in place. Despite not being the only member of the Association, Meta was the largest player in the initial start-up and a subsidiary, Novi, was going to run the wallet in which the Diem blockchain would be stored. Diem, unlike Bitcoin or Ethereum, was a digital currency backed by multiple assets (though what these assets were was never disclosed). In the beginning, it seemed that these ideas, could’ve disrupted the world banking system, with Diem being the first potential digital bank, but it wasn’t long until the Association began to run into regulatory issues.

This disruption to the financial system did not bode well for most regulators and politicians and it wasn’t long after until it was warned that money laundering and increased terrorist financing could be a core issue with Diem. Further issues in August 2019 as the European Commission launched an investigation into Libra and combined with the October 2019 Zuckerberg congress hearings over data breaches and privacy (Cambridge Analytica scandal), the future began to look grim for Diem shortly after the initial ideas. The multiple assets backing approach were scrapped in 2020 in favour of the stablecoin approach (similar to USDT and USDC, USD pegged digital currency) and the shifting of operations from Switzerland to the US to try and please US regulators. Despite this move, the regulators were still not impressed, and Meta abandoned Diem, with the remaining assets to be sold for a measly 200 million USD. This was even though it had the original backing from the likes of Visa, Mastercard, Meta and Coinbase. The downfall of Diem, therefore, cannot be attributed to just one reason. Meta has been embroiled in security lawsuits and questions for almost half a decade, and the possibility of them owning a digital currency, which would have been generally centralised by them, didn’t sit well with regulators. Moreover, the lack of trust in stablecoins within areas like the EU can be seen as another contributor to the downfall of Diem.

Despite the failure of the project, it hasn’t demoralised Meta’s Cryptocurrency and digital assets plan. With the stock price also dropping by around 40% since the rebranding, it has been an unwise decision for them to persevere with Crypto based ventures. Despite these negatives, the future may still be bright for Meta, with NFTs booming in the past three months and more mainstream adoption and insight into the Metaverse, having the first-mover advantage into the corporate side of the industry may prove invaluable in the long run.

By: Samuel Buchan

Sector Head: Sophia Li

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