Why Diem chose to be regulated in the United States
Facebook-affiliated Diem cryptocurrency has changed almost everything about itself – name, structure, partners, and timeline – since its inception. Its change of location from Switzerland to the United States is perhaps one of its most significant.
Partly due to his relationship with data-hungry Facebook, Diem (formerly Libra) has faced pressure from regulators around the world. To move forward, the project had to finally plant its flag.
Diem This week, moved its headquarters to the United States and chose Silvergate Bank, an American regulated institution based in California and compatible with the blockchain, to issue the stablecoin. By making this gesture, Diem chooses an experienced partner who could help him ease his way to other countries.
“Financial regulators and politicians will be more comfortable with ‘Diem US’ headquartered in the United States than in Switzerland and with the issuance of dollar-backed Diem stablecoins through a Fed-regulated bank.” said Eric Grover, director of Intrepid Ventures.
Regulatory certainty will be critical to Diem’s growth. The evolution of the digital currency market poses questions about how the ecosystem will handle different approaches, including central bank digital currencies, non-fungible tokens and cryptocurrency, said Thad Peterson, senior analyst at Aite Group.
“Given the challenges Diem has faced so far, it makes sense to take a simpler approach to growing the business,” said Peterson. “A bank and a currency or stablecoin will make it easier for Diem to develop and prove the concept in order to convince other players of the relevance and validity of his approach.”
Diem can benefit from the size and breadth of the United States, where cryptocurrency and blockchain companies have matured rapidly in the two years since the publication of its white paper by Diem.
Diem is expected to launch a timeline this year that puts him behind other US stablecoins. But if Diem loses the early advantage, he is also entering a market where blockchains and smart contracts are more accepted by businesses – and cryptocurrency in general is better known to consumers.
The Boston-based Circle used its US base to introduce and grow its USDC stablecoin, while the Delaware-based company Coinbase is using its cryptocurrency exchange to push a deeper move into financial services.
Square now derives the majority of its income from cryptocurrency trading, and the CEO of largest payment in the United States networks publicly signal their interest in cryptocurrencies (and stable coins in particular). Visa, Mastercard and PayPal have all expressed their willingness to support stable point-of-sale transactions, and Venmo adds support for cryptocurrency, opening up the market to a wider audience.
This creates an environment in the United States in which consumers and merchants are more comfortable with digital currency than two years ago, when Libra was more pioneering and more strongly associated with Facebook.
All of these American payment companies do business internationally. By building a base in the United States, where the crypto market is booming, other countries will be forced to work with Diem out of competitive necessity.
“You prioritize the most important markets first, where you will gain popularity and critical mass the fastest,” said Richard Crone, payments consultant. “And it’s clearly the United States; Switzerland is not even on the euro.”
When he was called Libra, Diem had to contend with not only American politicians, but American payment companies as well – with major card brands, PayPal, eBay, Stripe and others. quit the project early in the wake of political pressure.
But while Diem can create regulatory coverage through his Silvergate partnership, the crypto economy is different now than in 2021, creating a larger market for Diem and potential partnerships with former Diem members and possible work of the government in favor of a digital currency from the US central bank.
In 2019, when Libra was first announced, “China had not issued [digital currency] and Coinbase had not gone public, ”Crone said. It was a different environment. In the United States, Diem can now be seen as a “white knight” who puts the United States in a stronger position to compete. “
The move from Switzerland also testifies to the evolution of Diem’s model. As a Libra, Diem was designed to pair its stable currency with a “basket” of traditional currencies from different countries in order to mitigate volatility. By changing this model to a one-to-one anchor between stablecoin and traditional currency, Switzerland made less sense as a seat. Diem did not comment beyond his Silvergate Bank post, but did mention in his announcement the “intensive” licensing process in Switzerland (which Diem has abandoned), and other countries have provided constructive comments. beneficial.
“Switzerland was chosen as the base because of its ‘neutral’ situation,” said Zil Bareisis, senior analyst at Celent. “Now that is no longer the case, and Diem’s focus is shifting to individual markets and specific currencies, with the United States being chosen as the pilot.”