21st Oct 2021 by Graham Buck
Facebook has launched a low-key pilot of Novi, its digital currency wallet, with a limited number of people in the US and Guatemala able to sign up to Novi and begin using it. Facebook opted to go ahead using the Paxos Dollar stablecoin (USDP) as its own cryptocurrency, Diem, has yet to receive regulatory approval.
The low-key launch contrasts with the original big ambitions for Facebook’s cryptocurrency project and the wide publicity attracted in June 2019 when it announced it was setting up a consortium of backers under the name the Libra Association. The plan was to launch a new cryptocurrency named Libra that would be based on a mix of currencies rather than any single one such as the US dollar or the euro.
Facebook quickly encountered strong opposition from many central banks, which saw Libra as a threat as it could become a quasi-sovereign currency in some countries. The Association scaled back its ambitions within months and announced that it would instead focus on single-currency stablecoins, which would have a fixed value and not fluctuate.
The project was subsequently renamed the Diem Association, while Facebook’s wallet project – initially named Calibra – was also rebranded to Novi. Last December David Marcus, the head of Facebook Financial – aka F2 – said that he hoped the Diem cryptocurrency and Novi wallet would launch in 2021.
Diem still supported
Marcus announced in a blog post on 19 October that Facebook had started the pilot of Novi in parts of the US and in Guatemala. Users could download the app on iPhones or Android and register with a
government-issued ID and transferring money between wallets would be free. The US cryptocurrency exchange Coinbase is providing custody services for Novi.
“I do want to be clear that our support for Diem hasn’t changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live,” Marcus added. “We care about interoperability and we want to do it right.”
In the meantime Facebook is obliged to use an existing stablecoin in lieu of Diem and has opted for the Paxos Dollar – abbreviated to USDP – which is tied to the US dollar and backed by cash and cash equivalents to ensure its value. User funds are managed by Coinbase Custody, meaning that Coinbase stores USDP funds for Novi users. The latter can then send USDP to other Novi users.
Although the pilot is relatively low-key it has already attracted criticism in the US, where a group of Democratic senators including Brian Schatz, Sherrod Brown, Richard Blumenthal and Elizabeth Warren is calling for Facebook to shut down the project, as well as Novi.
“Facebook is once again pursuing digital currency plans on an aggressive timeline . . . even though these plans are incompatible with the actual financial regulatory landscape – not only for Diem specifically, but also for stablecoins in general,” they write in a letter to Mark Zuckerberg, Facebook’s chief executive.
According to the Financial Times, the Paxos Dollar is the eighth-largest stablecoin, based on data from cryptocurrency specialist CoinGecko but accounts for less than 1% of a US$130bn industry dominated by market leader Tether, followed by USD Coin, run by Coinbase and payments company Circle.
Paxos has positioned itself as a more responsible currency and received “preliminary conditional approval” for a US bank charter from the Office of the Comptroller of the Currency in April. “Paxos has paved the way in crypto by building regulated solutions within established frameworks,” Walter Hessert, head of strategy at Paxos, wrote in a blog post.
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