The announcement yesterday that Facebook’s Novi was launching a pilot for its stablecoin wallet attracted a rapid response from Democrat Senators who wrote a letter urging Facebook to stop the pilot.
Yesterday’s letter was signed by five Senators Brian Schatz, Senate Banking, Housing, and Urban Affairs Committee Chairman Sherrod Brown, Richard Blumenthal, Elizabeth Warren and Tina Smith.
Novi’s pilot does not use the Diem stablecoin or payments network and instead uses the Paxos Dollar. Facebook’s wallet subsidiary has secured state-issued money transmitter licenses in 46 states. However, the Senators highlighted that this is not the equivalent of having a blessing from “all U.S. regulators,” which Mark Zuckerberg offered in testimony two years ago.
Regulators are currently exploring the risks of stablecoins to financial stability. And the Senators referred to the Acting Comptroller of the Currency, who stated last month that the 2008 financial crisis holds lessons for the crypto and DeFi sector. He specifically highlighted cryptocurrency lending, which is fueled by stablecoins. Although at this stage, Novi is focused on payments.
“Facebook’s decision to pursue a digital currency and payments network is just one more example of the company’ moving fast and breaking things’ (and in too many cases, misleading Congress in order to do so),” wrote the Senators.
“Time and again, Facebook has made conscious business decisions to continue with actions that have harmed its users and the broader society. Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.”
Facebook is facing heightened scrutiny following whistleblower revelations of the impact of Facebook and Facebook owned Instagram on youth. The “company’s researchers found that Instagram is harmful for a sizable percentage of them, most notably teenage girls,” wrote the Wall Street Journal. This new focus on children has brought a bipartisan reaction, compared to previous concerns about Facebook, which were divided along political lines.
Diem pushes back
In response to the letter, the Diem Association issued a statement clarifying its relationship with Facebook and pushing back on comments about financial crime compliance.
“Diem is not Facebook. We are an independent organization, and Facebook’s Novi is just one of more than two dozen members of the Diem Association. Novi’s pilot with Paxos is unrelated to Diem,” the association wrote in its statement.