Facebook has not given up in its quest to harness the power of the blockchain to expand into the finance business. After failing with its Libra project, the social media giant announced a partnership with Coinbase to roll out its cryptocurrency wallet, Novi.
The launch is still in the testing phase. According to an official statement from David Marcus, Head of Novi, Facebook is launching a pilot of Novi available to a small group of people intending to test the robustness of its service.
Facebook, Paxos and Coinbase: Three Heavyweights United to Serve the Unbaked
The Novi service is available for the United States (except for Alaska, Nevada, New York, and the U.S. Virgin Islands) and Guatemala, a small Latin American country located in Central America.
Novi will allow users to send and receive Pax Dollars, a US-regulated stablecoin backed by cash reserves and cash equivalents. The funds will be held by Coinbase Custody, and users will be able to exchange their Pax Dollars to fiat currency instantly.
Facebook explains that it decided to launch its cryptocurrency to cater to the unbanked population, a segment of 1.7 billion people worldwide. Facebook believes that the use of Novi could offer an efficient, cost-effective, and successful alternative for remittances and day-to-day financial transactions.
Furthermore, Facebook emphasized that they have not given up on their dream to launch a separate blockchain. Facebook also assured that in addition to the technical aspects, they are working on satisfying all the legal requirements to get the go-ahead from the U.S. authorities and migrate all their services to Diem, a native blockchain that was born as a sort of evolution of Libra.
Regulators vs Diem
Facebook’s road down the cryptocurrency highway has been bumpy. Its main karma so far has been its own reputation. The Cambridge Analytica scandals and other massive leaks of personal data have raised the alarm among regulators who have been keen to curb any attempt to couple a mention of Facebook with a mention of Financial Services.
Facebook is aware of this, and in the same official note, they reassured that Facebook and Novi accounts are kept separate and that the wallet is built with an emphasis on security.
We know privacy is top of mind for Novi customers, so it will always be top of mind for us. We prioritize the security and privacy of people’s information by encrypting sensitive financial information … If we determine a transaction is unauthorized, we provide a full refund back to a person’s Novi balance. People’s Novi accounts and Facebook accounts are separate.
But this was not enough for some regulators like the anti-crypto Elizabeth Warren and a committee of 4 other senators who were already demanding Facebook to cancel the project a few hours after the announcement.
According to a letter published on the U.S. Senate website, the senators consider that Facebook is untrustworthy and that the launch of Diem could be risky for the financial stability of the United States:
“Unfortunately, Facebook’s decision to pursue a digital currency and payments network is just one more example of the company “moving fast and breaking things” (and in too many cases, misleading Congress in order to do so) … Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient. We urge you to immediately discontinue your Novi pilot and to commit that you will not bring Diem to market.
The Diem Association countered by issuing a statement recalling that Diem is a separate entity from Facebook, that Facebook’s initiative was not related to Diem, and that a senior regulator said that “Diem is the best-designed stablecoin project that the U.S. government had seen.”
Cryptopotato couldn’t find out who that senior regulator was, but for sure they must not be friends with Ms Warren.