4 Reasons Why Facebook’s Stablecoin “Diem” is Dead on Arrival
Following a major rebranding and restrategizing announced in December 2020, the Facebook-backed Libra officially changed its identity to Diem, citing a new strategy, leadership, and vision. This move came as a result of the major central bank and government blowback in response to Facebook’s Libra conception in 2017 which spooked and antagonized many regulatory entities. They feared that Facebook might become a “shadow bank,” as well as create a rival currency to sovereign state-issued currencies in the US and EU. Simply put, regulators stated they would never approve Libra in their jurisdiction under the originally-proposed manners.
The entire reason Libra was scrapped and completely rebuilt from the ground up was because as soon as Facebook announced a proof of concept in late 2017, regulators, central banks, governments, and other entities immediately threw up their hands in opposition. In fact, once this blanket regulatory opposition occurred, 7 the 28 original members of the Diem Association (explained below) withdrew from Libra’s membership.
- Competition against national currencies. Some finance ministers viewed Libra’s currency (now Diem’s?) as a “threat to monetary sovereignty of European states
- How would it deal with money laundering, consumer protection, and cryptocurrency taxes
- Fears of Facebook becoming a “shadow bank”
- Monopoly — They own social media, big data, technology, and now money?
Consensus Mechanism — LibraBFT (Byzantine Fault Tolerance)
As opposed to running a Proof of Work mining consensus model, Diem transactions will be confirmed by a permissioned blockchain.
Small Group of Validators
Unlike decentralized cryptos like Bitcoin or Ethereum, Diem is not built on the blockchain but rather a custom version of a ledger that is centralized and maintained by a relatively small group of validators. All of these validators are Diem Association members (tech, payments, finance, or business entities who donate $10M+ for membership and accept responsibility to run a node). This small and centralized group of validators are the sole decision-makers for Diem network and protocol decisions.
If you read the Diem whitepaper in which they break down the official rebranding and new vision, one of the first lines is about creating a global network and system that is compliant with all domestic and international regulations and lawmakers. This is inherently against the philosophy of crypto, which is creating an entirely new system outside of the reach of governments and regulators. Diem promises to abide by and be designed with a focus on being compliant with the legacy financial system from the start. Sounds like trying to slap “blockchain” or “crypto” onto a 20th-century e-cash replica to me.
A little late to the game for a more centralized and regulation-hamstrung attempt. Diem will have A LOT of catching up to do if it wants to siphon market share from stablecoin mainstays that have seen high adoption such as Tether, USDC, DAI, etc. which have all been live and operational. Meanwhile, as of January 30, 2021 Diem is still in development.
Global Payment Systems
Diem attempts to build a new global payment system that allows for instant and cheap peer-to-peer transactions. Sound familiar?
Current iterations of this very initiative that are more effective include Bitcoin Cash, Litecoin, XRP, and more. Not to mention, Bitcoin and Ethereum are currently undergoing long-awaited network upgrades to layer-2 scaling solutions that will dwarf any transaction speed and fee Diem (or any of the above mentioned altcoins) could offer.
Network effect is huge, and so is name recognition. Libra has a tarnished reputation before it’s live, with many already referring to it as “the Facebook coin.” 10 years ago this might’ve been good but with the following reputational stains, being associated with Facebook in 2021 is toxic to say the least:
- Archaic social media — who still uses it?
- Big Tech — known for being slow, hampered by red-tape, heavy ad presence, poor UX experience
- Cambridge Analytica scandal — is user data safe with Diem?
- Privacy Concerns — Will Facebook user personal data be shared without authorization?
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Originally published at https://www.publish0x.com.