Facebook’s Diem: First Among Equals?

2021 will go down in history with several significant trends and phenomena for the blockchain industry and the crypto world. These are the explosive growth in the popularity of NFT technology, the expansion of CeDeFi exchanges, the legalization of bitcoin by El Salvador, the great migration of miners and the global redistribution of computing power for bitcoin mining..

Facebook’s Diem, a project of unprecedented scale to create a stablecoin within the largest social network on the planet, covering 2.5 billion people, also claims the status of a key event. But the launch keeps getting delayed.

From Libra to Diem

Just two years ago, the mainstream media were full of reports that the world’s largest social network plans to release its own stablecoin soon. A little later, we learned that Facebook had to revise its ideas and change its strategy due to problems with regulators. Then the original name of the project – Libra – changed to Diem, the Calibra wallet turned into Novi, and the launch date shifted by a year.

What is Diem from Facebook? It is a blockchain-based payment system with its own stablecoin. Zuckerberg’s company is indeed the nominal author and driver of the project, but it will be controlled by members of the Swiss-registered Diem Association. Today the Association unites 26 enterprises. In any case, such information is presented on the official website of the project.

Blockchain Diem is conceived as a corporate, i.e. centralized. Only members of the Diem Association will have the right to conduct transactions on it. The creators of the stablecoin explain it this way: “The development team has not yet found a reliable solution for processing public transactions initiated by billions of users.” Fans of the project hope that the situation will change after the development is completed and the coin enters the market.

The Diem team says that the main goal of launching a stablecoin is to provide quick and easy access to financial services for billions of people. If the project still receives the approval of the regulators, then the Diem Association will become an analogue of the central bank of some very large state – only in the digital world.

The Diem ecosystem consists of three key parts:

• Blockchain. Serves as a technological basis for the future payment system. The source code is written in Rust and is publicly available on Github. The use of the blockchain will allow you to easily scale the project if necessary, as well as integrate third-party applications from other developers. As part of the blockchain, the Move language is being developed to create smart contracts.
• Novi Wallet. A branded cryptocurrency wallet for Facebook was developed by one of its subsidiaries, Novi Financial. Full support for integration with WhatsApp, Facebook Messenger, Instagram and other platforms is expected.
• Stablecoin Diem. It is a stable cryptocurrency with a hard peg to a basket of fiat currencies and equivalents. The stablecoin has no mining capabilities, although Facebook talks about the likelihood of switching to forging or minting 5 years after the launch of the project.

Diem Key Ideas

Facebook says that the project is based on such noble ideas and postulates:

• the ability to control their work and its results is the right of every person;
• general availability of all financial services;
• global payment systems should be open, cheap to use and provide high speed of transactions;
• distributed forms of control will gradually gain maximum user confidence;
• the development of an open and public payment system with a high level of feedback – in addition to compliance with all regulatory requirements – must be supported by best management and design practices.

Why did Facebook need Diem?

The leading social network plans to solve several problems with the help of a branded stablecoin:

• to simplify the processes of users’ monetary settlements, providing them with a low-cost and high-speed alternative to existing payment systems;
• develop e-commerce at a faster pace. One of the members of the Diem Association is Shopify (a leading software developer for online stores), which guarantees 100% integration of Diem into the participants’ e-commerce payment system;
• simplification of algorithms for international payments. Thanks to the huge potential audience, cross-border payment systems (Facebook alone has more than 2 billion of them worldwide), the company plans to significantly reduce operating costs and make this service accessible to everyone.
• Provide distributed control. All members of the Diem Association, and not just one social network, will have control over the blockchain. This approach guarantees the impossibility of using the potential of the project to please anyone’s interests – at least in theory.

When can we expect the launch?

Facebook was subjected to widespread criticism by state regulators already at the time of the announcement of the project, then called Libra. Because of this, several major participants immediately left the consortium of developers, including eBay, Visa, MasterCard.

This was followed by a change in concept – from the issuance of one stablecoin to several coins pegged to different currencies. However, neither these proposals nor the rebranding of the project affected the attitude of the regulatory authorities towards it.

An exclusive agreement to issue a USD-pegged stablecoin was signed by Diem Associations with Silvergate bank back in early 2021. But the long-awaited coin never entered the market. The parties explain what is happening with regulatory obstacles and difficulties.

Later, information appeared that the Diem Association was negotiating the use of third-party stablecoins (USDC and PAX) in its ecosystem. One gets the impression that the initiators of the Facebook project are frantically looking for any options to count on the approval of the regulators. But so far nothing has been found.

Therefore, one should not seriously count on the launch of Diem this year. Perhaps this landmark event will happen as early as 2022, unless, of course, Facebook finally abandons the long-standing idea. However, the most incredible stories are possible in the crypto world.