Diem, formerly known as Libra, is shifting its headquarters from Switzerland to the United States and withdrawing its Swiss FINMA payments license application. U.S. bank Silvergate will become the exclusive issuer of the Diem USD stablecoin and manage the Diem USD stablecoin reserve.
The Diem Association was initiated by Facebook as a stablecoin issuer and payments network and currently boasts 26 members, including Facebook wallet app Nov, Coinbase, Lyft and Uber.
It’s worth noting that this could be another trigger that accelerates central bank digital currency (CBDC) issuance. Several countries have stated that there’s no urgency for a CBDC but have specified a threat to monetary sovereignty as a potential trigger. For example, Canada has stated that a widely adopted U.S. dollar stablecoin might present a threat.
Given that Diem has built its blockchain-based payment network, it has been keen to launch its stablecoins. However, globally regulators have been wary about approving a Facebook associated stablecoin over concerns about the potential size it could reach with Facebook’s 2.8 billion userbase. That’s despite Diem’s willingness to adapt by operating a permissioned blockchain and downplaying its Libra stablecoin basket in favor of stablecoins in national currencies. Previous steps from global regulators aimed to delay a global stablecoin launch until late 2022 at the earliest.
Meanwhile, on January 4 this year, the U.S. Office of the Comptroller of the Currency (OCC) issued an interpretive letter that said banks could participate in stablecoin networks by running blockchain validator nodes and processing payments. An earlier letter written in September 2020 allowed banks to hold stablecoin reserves.
“While our plans take the project fully within the U.S. regulatory perimeter and no longer require a license from FINMA, the project has benefited greatly from the intensive licensing process in Switzerland and the constructive feedback from FINMA and more than two dozen other regulatory authorities from around the world convened by FINMA to consider the project,” said Diem CEO Stuart Levey.
The company said that Diem Networks US would register as a money services business with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Usually, such FinCEN licensing processes are pretty straightforward. Given the global regulatory pressure, it remains to be seen how easy it will be for Diem.
Californian state chartered bank Silvergate was an early entrant into the digital currency arena. Since 2018 it has integrated with the USDC stablecoin from Circle and Coinbase. The Silvergate Exchange Network enables Silvergate customers to transfer from their Silvergate account balances into USDC and other digital currencies. SEN handled $166.5 billion in dollar transfers in the first quarter of 2021, compared to $17.4 billion in Q1 2020. The bank counts cryptocurrency exchanges such as Coinbase and Gemini as clients.
“We are committed to a payment system that is safe for consumers and businesses, makes payments faster and cheaper, and takes advantage of blockchain technology to bring the benefits of the financial system to more people around the world,” said Levey.