Axios Pro: Fintech Deals

February 01, 2022

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Good morning, Fintech Deals readers, and happy Lunar New Year. 🐯

Situational awareness: "Web3 is the future, or a scam, or both," writes Recode's Peter Kafka. Good, we're glad someone finally cleared that up.

1 big thing: Diem's new home

An image of a coin with Facebook CEO Mark Zuckerberg on the front
Illustration: Sarah Grillo/Axios

Meta's stablecoin ambitions have officially come to a close, as the Diem Foundation — the consortium it founded in 2019 to build a new, digital payments network — sold to Silvergate Capital for $182 million.

Why it matters: The sale might represent a retreat by Meta, the company formerly known as Facebook, from blockchain tech and payments more broadly, but it also signals growing interest in stablecoins from more traditional financial institutions.

What's happening: Meta has unloaded Diem, the organization formerly known as Libra, in a stock and cash deal that will help it recoup at least some of the investment it made in attempting to build a new, blockchain-based payment regime.

  • Under the terms of the agreement, Silvergate, a commercial bank with a digital asset exchange, issued 1,221,217 shares of Class A common stock to Diem and paid $50 million in cash. Based on its closing price, the aggregate value of the deal was $182 million.

Flashback: The Libra project was announced to much fanfare in June 2019 with support from 27 tech and finance partners, including big names like Visa, Mastercard, Stripe, PayPal, eBay, Lyft, Uber, and Spotify.

  • But, almost immediately, the project received pushback from lawmakers and regulators in the U.S. and abroad, driving several of its largest partners to drop out of the Libra Association just months after launch.

The big picture: Stablecoins remain a flashpoint among regulators. Meanwhile, private issuers are awaiting more clarity from policymakers on how these new payment technologies will be regulated.

  • In November, a panel led by Treasury Secretary Janet Yellen issued a report recommending Congress pass legislation to regulate stablecoin issuers like banks or make certain only banks could be issuers.

Yes, but: In this case, the issue was less about a tech company issuing an unregulated stablecoin in general, and more about Facebook entering the space in particular.

Given the number of scandals Facebook has faced over the last several years, it always seemed like a long shot that Diem would pass muster with policymakers.

  • For example: In October, five senators wrote a letter urging Meta to discontinue plans to launch a digital currency and payments network.
  • Their beef? Recent allegations that Facebook knew its algorithms could harm adolescents and teens. And, of course, the company's general indifference to the harms its products may cause.

Of note: Silvergate (NYSE: SI) is not exactly a new player in this space — the bank aggressively dove into crypto around 2018 when most avoided it over money-laundering fears.

  • In part due to its early entry into the industry, the company's value has risen 723% since its 2019 IPO, to $3.3 billion.

What's next: Diem was already working with Silvergate to issue dollar-denominated stablecoins as part of a partnership meant to appease U.S. regulators, but the acquisition could hasten that release.

  • In its announcement, Silvergate highlighted how its bank could integrate Diem technology with its existing real-time payments platform to launch a stablecoin later this year.

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