Facebook's Diem Played By All the Rules. It Wasn’t Enough

Hey all, it’s Kurt in San Francisco. What lessons will Mark Zuckerberg learn from the downfall of his crypto project? Maybe not the ones D.C. would like. But first… 

Today’s top tech news: 

• Apple bested supply chain crises to post record quarterly earnings
• Robinhood’s stock fell as its crypto trading revenue declined
• SoftBank COO Marcelo Claure is leaving after a dispute over pay

Move slow and break things

When Meta (then-Facebook) first launched Diem (then-Libra) back in 2019, it pitched the idea for a global digital currency to journalists from inside the San Francisco Mint, a historic high-pillared, high-ceilinged building in downtown San Francisco that reportedly once held one-third of the gold reserves for the entire country.  

The symbolism was glaringly obvious. Meta was minting its own currency, and its expectations were grandiose.

The Diem project came to a much more subdued end this week with news that the association running the project will sell off its remaining assets for $200 million to the bank Silvergate Capital. Diem ultimately unraveled because of regulatory scrutiny. The project’s grand ambitions for a global digital currency were routinely scaled back as it faced more and more pushback and red tape. Eventually the U.S. Federal Reserve warned that a Diem stablecoin may never be approved, all but ending the Diem dream

What I find interesting about this saga is not that Diem failed. (Though there are many people, including Jack Dorsey, who are happy to dance on Diem’s grave.) What I find interesting is that by most standards, Meta Platforms Inc. and Chief Executive Officer Mark Zuckerberg did almost everything that critics claim they want the company to do when they launch something new. Meta engaged with regulators early. Execs promised not to launch a coin without regulatory approval. The company even sent Zuckerberg to answer questions about the project before Congress.

Meta tried to play nice when it came to Diem. The project got whacked anyway.

I have to imagine this experience will matter to Meta and Zuckerberg when the company moves forward with other ambitious projects in the future, primarily its hope of building an “embodied internet” known as the metaverse. The financial industry is much more tightly regulated than the consumer internet, but that could shift with the metaverse. Critics are already clamoring for more oversight and rules around this presumed virtual world, primarily because we all saw what happened when there were very few regulations around privacy and data collection for Meta’s existing products, like Facebook and Instagram.

It's a good idea to regulate the metaverse early, the thinking goes, because it will be much harder to regulate after everyone is already teleporting to work in a VR headset.  

How proactive will Zuckerberg be when it comes to metaverse regulation? Will he reach out to regulators, and fly to Washington to answer their questions like he did with Diem? Regulation can happen whether Meta plays nice or not, of course, but it seems possible the company’s strategy will change. It’s hard to imagine Zuckerberg will voluntarily jump through Washington hoops after watching Diem crash and burn. —Kurt Wagner

If you read one thing 

Members of Congress have a lot of Big Tech in their portfolios. According to financial filings, at least 18 senators and 77 House members report owning shares of one or more of the biggest tech companies. And Nancy Pelosi disclosed that her husband has as much as $25.5 million in Apple stock alone. 

Here’s what you need to know 

Old-world financial giant Fidelity files to start ETFs tied to the metaverse and the crypto industry

DeFi gets a big scandal after a project called Wonderland is revealed to be partly run by a felon. Expect more drama to come. 

Apple is planning a new service that will let small businesses accept payments directly on their iPhones without any extra hardware, a move that could be bad news for Square

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