In 2019, Facebook (now Meta) announced an ambitious plan to launch a new cryptocurrency called Libra. The goal was straightforward yet ground-breaking: create a global digital currency that would make financial transactions as easy as sending a text. Unlike Bitcoin and other volatile cryptocurrencies, Libra was designed to be a stable coin—a digital currency backed by a reserve of real-world assets like major currencies and government bonds. However, what seemed like a revolutionary step for the financial world soon turned into one of the most controversial projects in the history of digital currencies.
Why Did Facebook Want to Launch Libra Cryptocurrency?
At the core of Libra’s mission was financial inclusion. According to the World Bank, around 1.7 billion people worldwide do not have access to traditional banking services. Many of them, however, do have smartphones and internet access. By leveraging Facebook’s massive user base—over 2.8 billion users across its platforms—the idea was to create a fast, low-cost way to send and receive money globally. Users would be able to make transactions using the Calibra wallet (later renamed Novi) integrated into Facebook apps like Messenger and WhatsApp.
The plan also aimed to address the inefficiencies and high fees associated with traditional cross-border payments, which can take days and cost a significant percentage of the transferred amount.
How Was Libra Supposed to Work?
Libra was not just another decentralized cryptocurrency like Bitcoin. Instead, it was governed by the Libra Association, a Switzerland-based non-profit consortium initially consisting of 28 founding members, including big names like Visa, Mastercard, PayPal, and Uber. This association was responsible for managing the Libra Reserve, which backed the cryptocurrency to keep its value stable.
Unlike Bitcoin’s open network where anyone could validate transactions, Libra was designed to operate on a permissioned blockchain. Only authorized members could validate and approve transactions. This was seen as a way to address regulatory concerns while ensuring efficiency and security.
The Libra Reserve: Ensuring Stability
What made Libra different was its backing by a basket of real-world assets, including U.S. dollars, Euros, Japanese yen, and low-risk government bonds. For every Libra coin issued, an equivalent amount of these assets would be held in reserve. This backing was meant to prevent the extreme price volatility that plagues other cryptocurrencies. By ensuring that 1 Libra would always be exchangeable for a predictable amount of traditional currency, the project aimed to build trust among users and regulators.
Regulatory Hurdles and Growing Concerns
As soon as Libra was announced, it faced an intense wave of regulatory scrutiny. Governments and financial regulators worldwide expressed concerns over data privacy, money laundering, financial stability, and the potential threat to national currencies. U.S. lawmakers called for a halt to the project, arguing that a currency controlled by a tech giant with Facebook’s reach could undermine national sovereignty.
In response to these concerns, several key partners like PayPal, Visa, Mastercard, and Stripe pulled out of the Libra Association, dealing a severe blow to the project’s credibility. Lawmakers also highlighted Facebook’s past issues with privacy and data misuse, which only made the scrutiny harsher. To rebuild its image and address regulatory concerns, the Libra Association rebranded itself as the Diem Association in 2020. The project’s name was also changed from Libra to Diem, derived from the Latin word for “day,” symbolizing a fresh start. The idea was to simplify the project by focusing on a single stablecoin backed by the U.S. dollar instead of a basket of currencies.
Additionally, the Calibra wallet was rebranded as Novi. Despite these efforts, regulators remained sceptical, and the project continued to face significant legal and regulatory roadblocks.
Why Did Libra (Diem) Fail?
The failure of Libra—later Diem—can be attributed to several key factors:
- Regulatory Pushback: Governments worldwide saw Libra as a potential threat to financial stability and national currencies. The idea of a currency controlled by a tech giant like Facebook was a red flag.
- Loss of Key Partners: The exit of payment giants like Visa and Mastercard undermined confidence in the project.
- Privacy Concerns: Facebook’s past controversies regarding data privacy made it hard to convince regulators that Libra wouldn’t be used to mine and misuse users’ financial data.
- Operational Challenges: Setting up a new, compliant financial infrastructure proved to be more complex and costly than initially anticipated. By early 2022, it was clear that Diem was not going to receive the regulatory green light needed to launch. The project was formally shut down, and its assets were sold to Silver gate Bank, a crypto-friendly bank in California. The closure marked a significant setback for Meta’s ambitions in the digital currency space.
The Legacy of Libra
Although Libra did not succeed, its legacy is significant. The project brought mainstream attention to stable coins and forced regulators to speed up discussions on central bank digital currencies (CBDCs). It also highlighted the challenges that tech companies face when trying to enter heavily regulated financial markets.
Moreover, the controversy around Libra sparked important debates about data privacy, financial sovereignty, and the role of big tech in the financial system—discussions that continue to influence policy making today.
Conclusion
The story of Libra is a powerful reminder of the challenges in disrupting the financial system, especially for tech giants. While the project’s ambition was unmatched, the lack of regulatory foresight proved to be its downfall. Nonetheless, the lessons learned from Libra’s failure are likely to shape the future of digital currencies for years to come.