Facebook-backed digital currency project Diem Association is relocating to the United States and has abandoned its plans for a Swiss payments license, it said in a statement. The company will now move to Washington, DC from Geneva, where it is currently based, CNBC reported.
Back in 2019, Facebook brought various startups and financial services giants together to create a global digital currency called Libra. The project had to undergo several strategic changes given the lack of regulatory support it received in the past few years. After facing opposition from regulators around the world, many companies that were part of the project like Visa, Mastercard and PayPal decided to withdraw forcing the association to go through a complete makeover. Diem recently changed its strategy from a digital currency project, backed by a basket of multiple currencies, to a stablecoin model pegged to the US Dollar.
While cryptocurrencies are priced based on their perceived value, stablecoins have an intrinsic value based on the underlying fiat-currency. So for instance, if 1 Bitcoin may be worth over $18,000 today, a stablecoin’s price is pegged more or less in line to the underlying currency. There are several US dollar denominated stablecoins in the crypto universe including Tether, USD Coin and Celo Dollar.
Diem is withdrawing its application for a payments system license from the Swiss Financial Markets Authority (FINMA) and is partnering with Silvergate, a bank in the US, which will become the exclusive issuer of the Diem USD stablecoin and will manage the Diem USD reserve, the statement said. Diem Networks will register as a money services business as part of the Department of the Treasury’s Financial Crimes Enforcement Network, it added.
“Diem Networks US will run the Diem Payment Network (DPN), a permissioned blockchain-based payment system that facilitates the real-time transfer of Diem stablecoins among approved network participants. The formation of this partnership is an important step in preparation for a Diem USD pilot.”
Stuart Levey, chief executive officer of Diem, said that Silvergate is an ideal partner for Diem as they prepare to launch blockchain-based payment system. “While our plans take the project fully within the US 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,” he said.
Silvergate is a 30-year-old community bank, which over the past few years has become a lifeline for cryptocurrency exchanges and companies who were turned down by the bigger commercial banks on Wall Street, according to CNBC.
According to a recent report by the Citi Group, Diem could become a white label central digital currency (CBDC) provider. “Diem is also designed to enable a very high degree of interoperability between different participants, whether these are banks, financial institutions, service providers, like wallet providers to consumers, payment service providers, etc. And can build an infrastructure layer on top of future national CBDCs,” it said.
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