Facebook has unveiled the Novi digital currency wallet pilot in the United States and the Central American nation of Guatemala on Oct 19. While the wallet is free of any charges (at this time), operates with KYC and primarily focused on remittances, the interesting part is that Facebook has retired its Diem cryptocurrency project in favor of the Ethereum based Paxos issued USDP stablecoin – an ERC 20 token with custody services being sourced from Coinbase. The limited rollout carries the “Move the money instantly with no fees” allows the user to send/receive and hold United States Dollars (USD) equivalent USDP stablecoin. It also offers the users to deposit and withdraw from / into their local currency.
There aren’t many details available on how Facebook’s Novi makes use of the Ethereum blockchain, but the general explanations are either Ethereum L2 usage or usage for only final settlements, while the rest of the time, only the internal ledger is updated. Facebook’s Diem is a Libra rebrand to build a permissioned payment system on the blockchain. It appears that it has been shelved for the time being, because of the regulatory concerns
Facebook’s decision to use the Paxos’s issued highly regulated stablecoin USDP and the Ethereum blockchain is not very surprising. The social media company has faced severe criticism and warnings of regulatory repercussions from several sections of the United States Government. Even after Novi’s launch, several US lawmakers asked Facebook to halt the project saying it poses risks to financial stability, however it’s unlikely that the existing regulations would have much impact on open source system’s component that Facebook has sourced it’s latest product from.
In a letter sent by US Senators Brian Schatz (D-HI), Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Richard Blumenthal (D-CT) and Tina Smith (D-MN) on Oct 19. The senators remarked that “Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape”.
They also expressed dissatisfaction on the Novi plans in the following words ” 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. We urge you to immediately discontinue your Novi pilot and to commit that you will not bring Diem to market”
About Facebook’s Diem
Diem is a project by Facebook, launched under the “banking the unbanked” initiative. It is designed around the same promises of faster transactions, lower fees, and making banking services available worldwide. The project was first called “Libra”, but was faced with too many obstacles from financial regulators. Facebook rebranded the whole Libra project to Diem, somewhere in the mid 2020.
It’s a pseudo decentralized permission blockchain payment system with the aim of handling digital transactions. Facebook’s vision for Diem includes allowing easy access to anyone with basic internet services, guaranteed price stability, less processing time, scalable interface and a walled ecosystem.