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Ambitious cryptocurrency project announced by Facebook three years ago almost became one of the main disappointments of the crypto industry. But it didn’t – and if Libra couldn’t really take off, Diem is slowly and persistently moving towards its goal.

And yes, this is us bringing up Facebook’s Diem cryptocurrency, which under its former name Libra made a lot of noise in 2019, alarming American and global financial regulators. Now the project has scaled back its ambitions, reduced Mark Zuckerberg’s stake in it and is preparing to launch a dollar-pegged stablecoin.

Diem’s creators expect to work in the United States, although, notably, the team of developers is based in Switzerland. The project is being carried out by an independent association, although Facebook continues to participate in it through its Novi company. Also, the creators have already found a partner bank for their stablecoin.

The latest newsworthy event related to the project took place on May 12th of this year, when the Diem Association revealed a partnership between its subsidiary Diem Networks US and Silvergate Capital Corporation (NYSE: SI). Through this partnership, Silvergate Bank (“Silvergate”) became the exclusive issuer of Diem USD stablecoin. The association also announced a “strategic shift” in the United States, due to which Diem’s core operations were relocated from Switzerland back to America.

“Silvergate is a leader in financial innovation and a perfect partner for Diem as we move forward with a blockchain-based payment system that protects consumers and enhances the integrity of the financial system, – said Stuart Levey, the CEO of Diem. – We are committed to creating a payment system that is safe for consumers and businesses alike, makes payments faster and cheaper, and takes advantage of blockchain technology to bring the benefits of the financial system to more and more people around the world. We look forward to working with Silvergate to implement this shared vision.”

Here’s an important point: the word “cryptocurrency” does not appear once in the Diem documentation, since the project positions itself as a payment system, albeit on the blockchain. This was done deliberately to avoid rattling American regulators.

“We believe in the future of USD-backed stablecoins and their potential to transform existing payment system, – claimed Alan Lane, the CEO of Silvergate. – We are inspired by Diem technology and the commitment to create a compliant payment system that offers a safe and secure way to transfer money. We’re thrilled to be at a point in the process where we can confidently announce this product and look forward to continuing our work with Diem to bring it in the market.”

Forming the partnership between Diem Networks US and Silvergate Capital Corporation is an important step to prepare for the launch of the Diem USD pilot project. The roles are now split as follows: Diem has built a blockchain-based payment system, and Silvergate will become the exclusive issuer of Diem USD stablecoin, as well as manage the Diem USD reserve. Diem Networks US will operate Diem Payment Network (DPN), an authorized blockchain-based payment system that facilitates the transfer of Diem stablecoins in real time between approved network members.

As we remember, due to problems with the American authorities (more precisely, their strong negative attitude to the very idea of Libra, which they perceived as a competitor to the dollar), the Facebook cryptocurrency project was curtailed. But it didn’t die for good, instead it was picked up by a group of financial companies that created the Switzerland-based Diem Association.

Let’s just say that the idea of a stablecoin specifically designed for payments between users of the largest social network turned out to be too attractive to simply “bury” it. That is why Facebook continued with the project: its subsidiary Novi is developing a wallet for Diem and is a member of the Diem Association.

In total, the association includes 26 members, including the Coinbase cryptocurrency exchange, Union Square Ventures investment funds, Andreesen Horowitz, Blockchain Capital, as well as such large brands as Spotify, Shopify, Lyft and Uber. Diem Networks US is Diem’s ​​main operating company. Interestingly, among the stated objectives of the Diem payment network is not only a, quote, “faster and cheaper way of making payments with reliable control to protect consumers and fight financial crime”, but also “to complement the infrastructure of the public sector and integrate with central bank digital currencies (CBDC)”.

The Donald Trump administration was sharply opposed to cryptocurrency projects like Facebook Libra. Joe Biden’s administration, on the other hand, has a more lenient attitude. This has likely contributed to the fact that Diem is now simplifying its plans to issue the Diem USD stablecoin by transferring its main operations from Switzerland to America. This is consistent with Diem’s ​​initial strategic focus on the United States and reflects Diem’s ​​view of changes in US digital currency regulations.

Moreover, Diem is withdrawing its application for a payment system license from the Swiss Financial Market Supervisory Authority (FINMA), as it will no longer need it. Silvergate is a California bank and a member of the Federal Reserve System. This will allow Diem Networks US to easily register as a money services business with the Treasury Department’s Financial Crimes Enforcement Network.

“While our plans include the project within the US regulatory perimeter and no longer require a license from FINMA, we have benefited greatly from an intensive licensing process in Switzerland and constructive feedback from FINMA and more than two dozen other regulators from around the world that FINMA has engaged with for the project review”, – summarized Levey.

And here it is worth remembering that earlier Stuart Levy was previously engaged in fighting money laundering and terrorism as a member of the US supervisory authorities, which means he knows this system from the inside. And since the project is coming back to the United States, there are now some attractive prospects opening up in front of it.

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