Zuckerberg’s Diem could help creation of US CBDC

By Raffaele Redi
• Updated

Meta subsidiary set to be sold to Silvergate for $200m

Diem, Mark Zuckerberg’s private stablecoin project, could be used to help develop a US central bank digital currency (CBDC).

The crypto, formerly known as Libra, is reportedly selling its assets for $200m to Silvergate Capital, the exclusive issuer of the Diem USD stablecoin following a deal signed in May.

Silvergate aims to launch its own USD-backed stablecoin, and says it is well positioned to help in the development of a US CBDC by the US Federal Reserve.

Competing with other stablecoins

“If a US CBDC is launched, and it is a direct-to-consumer, direct-to-retail CBDC, then that would essentially be competing with any other existing or proposed stablecoins out there,” said Silvergate CEO Alan J Lane during the bank’s Q4 and full-year 2021 earnings conference call.

“It is likely that the US is going to issue a stablecoin directly to retail, or it is more likely that we’re not going to see a disruption of the two-tier banking system, and that rather anything that the US might contemplate would potentially be issued by the community banking ecosystem,” he added.

“In this case, I don’t think there’s anybody better positioned than Silvergate to participate in that,” he said.

Silvergate seems well positioned, having posted a net income for the year ended 31 December 2021 of $78.5m, compared with $26.0m for the previous year.

US CBDC ‘years away’

However, as the same Silvergate CEO Lane admitted, “any potential US CBDC is likely years away”.

“We don’t view it, we’re not concerned about it all. We’re sitting here ready to launch something in 2022 and the Fed is still talking about what it might look like,” said Lane.

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The Federal Reserve is believed to be exploring the possibility of issuing a CBDC after releasing a white paper on the topic.

The CEO confirmed Silvergate would continue with its plans to issue a USD-backed  stablecoin, saying it was looking to Novi customers as a new source of potential revenue.

Novi, the digital wallet app from Zuckerberg’s Meta, recently rolled out a small pilot scheme in Guatemala and the US.

For the pilot, Novi enabled people to send and receive money using USDP (pax dollar) through a partnership with Paxos and Coinbase.

‘CBDC future is around commerce‘

“The way we’re thinking about stablecoins hasn’t changed… the existing stablecoin market is there primarily in service of digital currency trading. And where we view the opportunity in the future is really around commerce and remittance,” explained Lane.

“In order to really get the distribution for that use case, we do anticipate that we will be working with many of our existing customers but adding new customers who have already established retail distribution channels,” he added.

“We intend to be the issuer of a US dollar-backed stablecoin, and we would expect that the distribution for that stablecoin would largely happen through our existing customers, as well as new potential customers that have retail distribution.”

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