Everything that could have made Meta’s digital currency project a success explains why it was doomed to fail. Facebook’s parent company has more than 2.9bn monthly users, sits on $58bn of cash and marketable securities and has a marketplace primed for transactions that bypass the traditional financial system. Its size is a serious challenge to the status quo.
What is strange is that Meta did not foresee this. It hoped that by working with other organisations and seeking regulator approval it would prove this was not a data land grab. But in proposing a new global digital currency disconnected from central banks it posed a potential threat to the US dollar’s dominant role in global currency.
First announced in 2019 as Libra (now Diem), the project was envisaged as a grand association of companies including Visa and PayPal tasked with building a blockchain and governing a new global digital currency. The coin, backed by a number of fiat currencies and securities, was intended to avoid the volatility that plagues the world’s biggest cryptocurrencies.
Even so, convincing users to adopt a new way of paying would have been a challenge. Less than a fifth of Americans have dipped their toes into cryptocurrencies.
Regulator hostility put a stop to the experiment. Yet for Meta and the crypto community the failure is not a critical blow. The sale of assets to crypto-enthusiast bank Silvergate, at $182mn, is a convenient exit. Proceeds will go to the Diem Association.
Silvergate’s share price has halved since reaching a high last November. The share portion of the deal is equal to about 4 per cent of the bank’s outstanding shares. Silvergate plans to issue a dollar-backed stablecoin, suggesting association members can keep a hand in digital coins.
There are two unintended consequences: Meta has encouraged central banks to speed up their own digital currency plans and focused regulator minds — mostly against the notion of non-bank issued stablecoins. Issuers such as Tether can expect more scrutiny into reserves.
The demise does not bode well for Meta’s virtual reality metaverse plans. But these are linked to digital advertising, a market it leads. Still, Meta tried to work with the system only to hit a wall. The old move fast and break things model must look appealing.
