Diem coin launch date: What you need to know
As Facebook staggers diem coin release date, US senators express ‘strongest opposition’
- What is diem?
- Regulation backlash and senators’ concerns
- Crypto and stablecoin regulation
- The privacy problem
- An interoperable blockchain
Facebook’s digital wallet, Novi, launched its October pilot in the US and Guatemala, despite concerns from officials and regulators.
For the test, users can only buy the Paxos dollar – a stablecoin that is pegged to the US dollar – meaning it does not have the same volatility as other cryptocurrencies but still has the same decentralised nature.
The cryptocurrency exchange Coinbase provided custody services for the launch.
Facebook has confirmed it still intends to release its own stablecoin, which it has called diem. The diem coin price should be around the $1 mark, and will also be pegged to the US dollar.
David Marcus, head of Facebook’s F2 (Facebook Financial) and international money transfers subsidiary Novi, said the company is waiting for regulatory approval before launching diem.
What is diem?
Diem was initially called The Libra Association, a consortium of companies including Facebook that was revealed in 2019. At the time of unveiling, Libra faced backlash from regulators and has since rebranded itself as the Diem Association.
In August 2021, Marcus wrote in a blog post that the aim of the diem cryptocurrency is to tackle the “broken payment infrastructure”. He pointed towards high transaction fees, slow cross-border payments and millions of people without bank accounts.
Marcus likened Facebook’s diem to messaging, which used to cost 25¢ but is now practically free. Marcus says he wants to spearhead a similar transition in the financial world.
As well as the rebrand, the association has gone through multiple changes. After Libra’s backlash from regulators, the association lost numerous members, including Visa, Mastercard, Stripe, PayPal, eBay and Vodafone.
Libra also changed the blockchain system. It was originally intended to be a permissioned blockchain where the association decides which payments to validate. This could satisfy security concerns from regulators.
However, it has since been changed to a permission-less blockchain where anyone can edit the records, a more common system used for cryptocurrencies.
Regulation backlash and senators’ concerns
Despite the rebranding, the concerns from regulators and officials are still present. As Facebook can reach billions of people, politicians are concerned over diem’s threat to monetary stability.
According to The Washington Post, Facebook executives met with officials from President Biden’s administration in September 2021 to address these concerns. The officials argued that if diem crashed, it could significantly threaten the broader economy because of its huge potential reach via Facebook.
After the pilot launch, five US senators – including Massachusetts senator Elizabeth Warren, the Democrat who helped set up the Consumer Financial Protection Bureau – wrote a letter to Mark Zuckerberg expressing their “strongest opposition” to the cryptocurrency and urging him to discontinue the project.
The letter noted that Zuckerberg assured congress that Facebook would not launch its diem coin without US regulatory approval. Despite this, the five senators said: “Facebook is once again pursuing digital currency plans on an aggressive timeline.”
It went on to express concerns that the “plans are incompatible with the actual financial regulatory landscape, not only for diem specifically, but also for stablecoins in general”. They likened stablecoins to the wholesale funding market that caused the 2008 financial crisis.
The other concern voiced by the senators was whether diem can prevent money-laundering and other criminal activities. The letter highlighted the report given to the G-20 financial ministers, which said that if stablecoins are widely adopted it makes them more vulnerable to use by criminals and terrorists.
This mass adoption could be soon if Facebook launches Novi internationally, as well as integrating it into Facebook Messenger and WhatsApp, which the company is currently planning to do.
Crypto and stablecoin regulation
The concern from officials is aimed not just at Facebook’s diem but also at stablecoins in general.
The Biden administration announced in October that it wanted to impose bank-like regulation on cryptocurrency companies that issue stablecoins.
A 22-page report from the Treasury Department released in November outlined some restrictions on stablecoins and looks at the potential legislation that might be required should the stablecoin issuers become banks.
This would potentially subject stablecoins to a broad range of rules, including the requirement that they must hold sufficient cash reserves and implement measures to prevent illicit activities.
The privacy problem
Facebook has been scrutinised in recent years concerning how it uses customers’ data, and this venture into cryptocurrency will be no different.
For example, to be able to sign up to use Novi, a person must have a valid government-issued ID. The digital wallet could also potentially track every contact and transaction users make.
However, a Novi press release states: “We prioritise the security and privacy of people’s information by encrypting sensitive financial information."
Critics have recently raised doubts about the reason behind Novi’s lack of transaction fees. The transaction fees and waiting times in traditional payment methods are due to security and anti-money-laundering checks. If regulation means Facebook will still have these obstacles, it raises questions about what the company hopes to gain without the fees.
Lee Reiners, a chartered financial analyst and executive director of the Global Financial Markets Center at Duke University School of Law, hypothesised to IEEE Spectrum magazine that diem will use Facebook’s existing business model of collecting and selling data.
An interoperable blockchain
In an article written on 18 August 2021, Marcus reinforced his aim to overcome the boundaries facing traditional payments. He highlighted that the costs are high and wait times are long when people want to send money to their families internationally.
When speaking about Novi’s future, Marcus wrote: “The goal for Novi has been and always will be to be interoperable with other digital wallets, and we believe a purpose-built blockchain for payments like diem is critical to deliver solutions to the problems that people experience with the current payment system.”
The diem coin’s international release date remains unclear as it is still awaiting regulatory approval. The launch date of Novi and the diem coin will depend on US regulators, as Zuckerberg has said they will not launch without their approval.
Facebook’s digital wallet, Novi, launched its pilot in October with the stablecoin Paxos. Facebook confirmed that diem will still launch and its release date will depend on approval from US regulators.
Yes, diem is a stablecoin that is pegged to the US dollar. This means that the price will stay around the $1 mark, avoiding the volatility associated with other cryptocurrencies.
Remember, if you are interested in investing, make sure you never invest more than you can afford to lose.
Diem is intended to solve the obstacles of transferring money. With no transfer fees or waiting times, users will be able to send money with ease. This means that diem is not intended for investing and making a profit.
Remember, you should always do your own research before investing.
Diem coin has not launched yet, so users are not able to buy it. When it does launch, you will be able to buy the coin on Novi, Facebook’s digital wallet.