Switzerland - Facebook Libra: the inside story of how the cryptocurrency dream died

(MENAFN- Swissinfo) Launched as Libra in 2019, the Cryptocurrency project quickly ran into opposition from policy-makers. Keystone / Kay Nietfeld

On June 24 2021, Jay Powell and Janet Yellen sat down for their weekly breakfast amid the austere surroundings of the US Treasury building on 1,500 Pennsylvania Avenue. There was only one major question on the agenda: should they give the green light for a global cryptocurrency designed by Facebook?

The chair of the federal Reserve and the Treasury secretary were both DC veterans; Powell had replaced Yellen at the top of the Fed. But neither had had to make such an unusual decision. An alliance of tech companies led by Facebook proposed to launch a product it hoped would profoundly change the world. Rather than adhering to the social media giant's one-time mantra“move fast and break things”, executives had come to Washington to ask permission first.

Powell laid out his position with his customary precision. As Fed chair, he told Yellen, he was willing to give the go-ahead for Facebook and its partners to trial Diem, as the digital currency backed by the US dollar was called at the time. He knew the Treasury had concerns, not least the possibility that such a currency could become a vehicle for money laundering or grow so popular as to threaten global monetary stability. But on balance, his staff thought Diem was designed carefully enough to avoid such outcomes and would have the added benefit of setting industry standards.

The social media company's reputation was sullied in Washington, following a series of controversies over data privacy, misinformation and alleged censorship. During his presidential bid the year before, Joe Biden said he had“never been a big fan” of Facebook's founder Mark Zuckerberg, describing him as“a real problem”. And prominent Democrats and Republicans alike had already spoken out against Diem specifically. A cautious operator, Powell wanted backing from Yellen, who is close to the president and popular among progressives.

After weeks of deliberation, Yellen had made up her mind: she was out.“Yellen told him it was his decision to make, but that she would not protect him from the political fallout if he did so,” says one person briefed on the conversation.“And that was the end of Facebook's digital currency.”

Diem's leadership would spend the next six months in a last-ditch drive to rescue the project that began by attempting to woo government regulators, then trying to browbeat them and, in a final folly, exploring working with Zuckerberg's one-time nemeses. But this January, Diem confirmed that it was winding down for good. The remains of Zuckerberg's digital money dream would be sold to a little-known Californian bank for $182 million (CHF170 million), marking one of the most spectacular, if little-noted, failures of his career.

Over the past few months, the Financial Times has spoken to some 30 people involved with the project, including executives, developers, lobbyists and the regulators and politicians who ultimately killed it. (Many of them spoke on condition of anonymity because Facebook requires employees and partners to sign non-disclosure agreements.)

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What emerges is a picture of Silicon Valley executives who thought they could charge into finance and make billions, if only they could surmount technical and regulatory barriers. What they failed to realise was that the very fact Facebook had conceived the idea, doomed it. As one government official involved in the process puts it:“Diem spent years trying to reverse engineer their project to fix all of its faults. But they could never fix being linked to Facebook. It was their original sin.”

Meta, as Facebook has since been rebranded, is one of a handful of tech companies now threatened with much stricter regulation, even break-up, by US politicians and regulators who have come to see it as a malignant force in American commerce and democracy. Nowhere has the divide between Silicon Valley and Capitol Hill been more clearly exposed than in the tortured downfall of Diem.

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A new financial infrastructure promises to transform the way money flows across the globe.

David Marcus was soaking up the Caribbean sun. It was the winter of 2017, and the dapper, French-born executive was on holiday in the Dominican Republic. Marcus, 48, was the head of Facebook's Messenger app and a close confidant of Zuckerberg's. His silver hair and slick suits set him apart from his younger, scruffier colleagues. Peers jokingly called him the“George Clooney of Silicon Valley,” and he was seen as powerful within the company.

Lying on the beach, Marcus indulged in some blue-sky thinking. What if he could find a way to create a global digital currency and integrate it into Facebook? Marcus was no stranger to the worlds of start-ups and digital payments. He sold his first company at 27. In 2011, a subsequent mobile payments start-up he founded was acquired by PayPal for $240 million. Within nine months, he was PayPal's president. In 2014, Zuckerberg recruited him to run Messenger, which he'd help grow to more than 1.3 billion users. But three years on, he was restless.

Meanwhile, blockchain technology and cryptocurrencies had become useful tools for dark web criminals as well as the lofty obsessions of programmers and utopian technologists. But they had yet to be adopted by any big corporations. For Facebook's more than two-billion-strong user base, crypto could offer a convenient and cheap way to move money around the world, Marcus thought.

For the social media company itself, it could provide a treasure trove of data about what people spend their money on. Interrupting his holiday abroad, Marcus texted Zuckerberg to outline his ruminations. Intrigued, the CEO gave his blessing to explore the idea further. So Marcus began methodically crafting a tool beloved by Silicon Valley entrepreneurs: a memo outlining the new project's objectives, defining ­success and quantifying how to get there.

Morgan Beller was a 24-year-old whirlwind. Fast-talking and animated, she had been a partner at venture capital group Andreessen Horowitz before joining Facebook's corporate development team in 2017. She was also a fierce blockchain advocate, who spent the latter part of that year trying to shop the technology to whichever Facebook executive would listen: why wasn't the company embracing decentralisation and open protocols for its users? Could it get into bitcoin mining? Should Facebook groups be able to issue their own digital tokens?“It's a really big company and taking really big risks is hard,” she tells the FT.“To give Facebook credit, the leadership was very receptive and very open. I didn't have anyone say no, at least to meeting and brainstorming.”

In early 2018, Marcus and Beller joined forces. At first, they worked in a small, empty room, walls adorned with whiteboards, on Facebook's main campus in Menlo Park. Soon they moved to a larger, more secluded building on the outskirts of the company's headquarters. Only employees with particular passes — the crypto experts, engineers and economists they brought on board — could access the facility. Their top-secret project was codenamed Libra. The team was ­“paranoid about leaks”, says Beller and was“like a secret Swat operation”.

This would be the first of several incarnations, each intended to conform to the difficulties and demands of launching a digital currency from within Facebook. Initially, the dream was for Libra to be like bitcoin, a currency owned by no one group and built on open-source technology. This would allow individuals to store, spend and transfer money across borders with close to zero transaction fees.

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