Mark Zuckerberg’s controversial cryptocurrency initiative is dead in the water amid resistance from the Federal Reserve — and Meta is looking to sell off its crypto assets altogether, according to a report.
The Diem Association — a crypto project formerly known as Libra that has been backed by the parent company of Facebook and Instagram — planned to issue a so-called stablecoin that would have been pegged to the US dollar.
Backers of the stablecoins say they have the potential to transform global finance by offering the seamless transaction speeds of cryptocurrencies without the price volatility of bitcoin or ethereum.
But from the moment Meta and its partners unveiled plans for a stablecoin in 2019, the idea met resistance from regulators, who expressed concern about letting the scandal-plagued company control a chunk of the global financial system. Zuckerberg defended the project in a contentious congressional hearing later that year.
Despite lawmakers’ opposition, Diem and Silvergate Capital — a fintech bank that was planning to issue the stablecoin — had pushed forward with their plans until they met resistance from the Federal Reserve in 2021, Bloomberg reported Wednesday.
Following several rounds of talks, Fed officials told Silvergate in the summer of 2021 that the central bank could not guarantee that it would allow the Diem project to go forward, according to the report. Silvergate was then left with no way to issue the stablecoin, Bloomberg reported.
Meta is exploring selling its roughly one-third stake in Diem, according to the outlet.
In addition to Meta, other partners in Diem include venture capital firms Andressen Horowitz and Union Square Ventures, as well as Uber, Shopify and the Singaporean state fund Temasek.
In November, a report issued by the US Treasury with contributions from the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission called on Congress to crack down on issuers of stablecoins.
Since stablecoins can pose risks including “destabilizing runs, disruptions in the payment system, and concentration of economic power,” any entity that issues a stablecoin should be regulated like a bank, the agencies said.
“Failure to act risks growth of payment stablecoins without adequate protection for users, the financial system, and the broader economy,” the report said.
Diem and the Fed declined to comment. Meta did not immediately respond to a request for comment.
