After months of regulatory scrutiny, congressional hearings, and pushback from multiple governments, Facebook has rebranded its planned Libra cryptocurrency to 'Diem', the Latin word for ‘day’. The social media giant is yet to receive a New York Bit License, nor does it have approval from Swiss regulator FINMA or consent from several US states, but believes it could launch the project as early as January 2021.
Considering the massive amount of controversy that it has whipped up since the initial announcement, the desire to rebrand isn't particularly surprising. However, despite its best efforts, the move has only attracted even more troubles for the embattled tech giant. Facebook now faces an antitrust lawsuit, a copyright infringement lawsuit, stifling regulatory proposals from the US Congress, and a swathe of technical changes that render the Diem project a shadow of its former self.
A litany of lawsuits
Following the announcement on December 1, 2020, that the Libra project has been rebranded as Diem, Facebook received notification of a copyright infringement with a small European fintech firm of the same name. The budding European business markets itself as ‘Your Bank of Things’ and appears to provide services that help you to quickly and easily sell your valuable or unwanted items.
The relatively small startup filed legal action against Facebook, alleging that the name would cause confusion amongst its customers and expressing annoyance at Facebook’s arrogant attitude. In rebranding their stablecoin project, it seems Facebook either didn’t perform adequate research or simply decided the existence of another company by the same name wasn’t a threat.
“It wouldn’t take that much effort for Facebook to find out if there’s another Diem in financial services. They obviously took the view that ‘we can just crush them, we’re Facebook,” said prominent fintech investor and Diem backer Chris Adelsbach in an interview with the EU startup publication Sifted.
No stranger to copyright infringements
Shockingly, Facebook’s embattled digital currency is no stranger to copyright infringements, having already faced a previous lawsuit over the logo of its original wallet app, Calibra. The wallet app, now rebranded to Novi, sported a logo with a strong resemblance to that of fintech startup Current. On June 19, 2019, Current tweeted an image of both logos side by side, with the scathing statement: “This is what happens when you only have 1 crayon left.”
In October 2019, Current’s parent company Finco Services subsequently filed a lawsuit against Facebook, Calibra Inc, and the logo designed Character SF, LLC. With Calibra now discontinued and the new Diem logo significantly different, it’s unlikely the case will continue. In July 2020, Facebook settled a separate lawsuit for $650 million relating to its unlawful use of facial recognition technology in photographs on the social media platform.
However, Facebook’s most pertinent troubles at present are not related to Diem but to its alleged anti-competitive conduct. On Wednesday, December 9, 2020, the Federal Trade Commission (FTC) along with attorney generals from almost every US state filed two antitrust lawsuits against Facebook. The lawsuits allege that the company has too great a monopoly and should divest its sister apps Instagram and WhatsApp.
The STABLE Act
Facebook's renewed vigour and enthusiasm to launch the Diem project in 2021 has ignited fresh proposals for clearer regulations in the US regarding stablecoins. Most recently, several US House of Representatives members including Rashida Tlaib, Jesús García, and Stephen Lynch put forward a proposal for stricter stablecoin regulation called the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act.
The proposal’s author, Rohan Grey, makes no qualms about the intentions of the act, stating that it was primarily formulated in response to Facebook’s cryptocurrency plans. However, it will also apply to any other digital currency that hopes to assert backing by the US dollar, such as Tether (USDT), the world’s most widely used stablecoin with nearly $20 billion in issued tokens. The regulatory issue has been further strengthened by Tether’s ongoing legal battle with the New York State Attorney (NYAG) regarding $850 million in missing client funds.
If passed, the STABLE Act will require that all companies that wish to issue a stablecoin backed by the US dollar must obtain a banking charter and approval from the US Federal Reserve and Federal Deposit Insurance Corporation (FDIC). It will also require them to take out FDIC insurance or maintain regularly audited reserves that ensure all issued coins are securely backed by real US dollars.
Can Facebook still provide a promising cryptocurrency?
When Facebook first announced its plans to launch an independent digital currency in 2019, lawmakers around the world experienced a kind of shared panic attack. Several US Congressmen, terrified by the very real threat of financial instability, hauled Facebook CEO Mark Zuckerberg before a House Financial Service Committee hearing and demanded that he explain himself.
Their concerns were not without warrant, considering Facebook’s massive existing user base and the company’s rather murky record in regards to consumer privacy. Back then, the Libra project already had several high-profile partners and was intended to be a global digital coin backed by a basket of international currencies, including the US dollar, euro, Japanese yen, British pound, and the Singapore dollar.
Fast forward a year and Facebook has lost many of its top investors, including Paypal, and the now watered-down Diem currency is little more than a heavily restricted, dollar-backed stablecoin. This makes it far less of a threat to the global economy and, subsequently, a far less exciting project. With Paypal planning to adopt crypto in 2021 and several countries planning to launch their own central bank digital currencies, ‘Facebook coin’ suddenly doesn’t sound so innovative. Cedar Rose offer services to ensure your company remains fully compliant to any regulations relevant to your industry. Contact us here for more information.