Libra had the advantage of Facebook’s nearly 3 billion monthly users, as well as Meta’s other apps like Instagram and WhatsApp. But that scale worked to the tech giant’s disadvantage. It was steadily forced to trim back its plans and lessen its involvement in what morphed from Libra into a consortium called the Diem Association. Last month, Diem announced that it was selling its assets to a small financial services company called Silvergate.
The idea of a gargantuan social network running its own blockchain-based financial system, initially called Libra, just didn’t sit well with policymakers in the U.S. and beyond.
“Some people have said if you read the [President’s Working Group] report, anywhere where it says ‘commercial enterprises,’ you can just insert ‘Facebook,’” Lane told Protocol.
Silvergate CEO Alan Lane said a critical turning point for Diem was the November release of a Treasury Department report that effectively endorsed stablecoins — so long as they were not affiliated with “commercial enterprises.”
This interview has been edited for brevity and clarity.
In an interview with Protocol, Lane explained how the midsized bank with $16 billion in assets and a market cap of roughly $3.7 billion ended up taking over one of the biggest crypto projects in tech, and how it’s eyeing a big role in the event that the federal government decides to roll out an official digital U.S. dollar. He also confirmed that “Diem” is pretty much dead: The stablecoin will go out under a different name.
How did Silvergate become involved in Diem and the Facebook crypto project?
Prior to any relationship with Diem, we were already active in the stablecoin space because we bank all of the major cryptocurrency players in the United States. We started having conversations with Diem in late 2020, probably in the third or fourth quarter of 2020. They were already pretty far down the path working with other banks.
But it turned out that even though they had been working with some other banks for a while — and we don’t know who those banks were, we just know they were large banks, much larger than us — they hadn’t made a lot of progress. Literally, a year ago in February of 2021, we were working on a technology sprint with them around the potential to mint the stablecoin using our platform. The feedback we got in late February was, “You guys at Silvergate just accomplished in 11 days what we couldn’t get accomplished in 11 months with these other banks that we’re working with.” That was a pivotal moment in essentially us moving to the front of the line, if you will, in terms of Diem feeling like, “You know, maybe we should be partnering with Silvergate as the issuer.”
What were you able to do in 11 days that other banks weren’t able to do in 11 months? I honestly don’t know, because I don’t know what they were trying to accomplish with the others and what roadblocks they were having. But because we had already done a lot of thinking about how we would issue our own stablecoin and we already had the API and the technology around minting and burning, having worked with the other stablecoin issuers, we just took it in stride and said, “Well, yeah, OK, this is what we’re going to do. This is how we’re going to do it.”
I think their eyes were open, that, “Hey, wait a second. Here’s a bank that already knows how to do this.” I’m putting words in their mouths. We were working behind the scenes in March, April, May and then we made the announcement in May that we were going to be the exclusive issuer. They were going to be running the payment network. They were going to be running the blockchain because Diem owns the blockchain and they had this association. So they had all these other members that were running nodes on the blockchain, and we were just going to be issuing the stablecoin.
And Ben, I’ve been in banking for 40 years. I know that if the regulators say that regulations are coming and that they’re imminent, the last thing we want to do is launch something before that comes out. Because what if there’s a feature that we’ve put in there that runs afoul of their guidance, right? As frustrating as it was, we decided we’re gonna have to wait until this report comes out. Fast forward to November. The report comes out. And what it said was that the President’s Working Group suggests that Congress actually adopt legislation, but absent that, the existing regulators will use their own regulatory authority to regulate these things. But embedded in that there was a strong preference for stablecoins to be issued by banks. The term that they use is “insured depository institutions,” which are essentially banks.
We remained engaged with the regulatory agencies and we got to the point in late June, early July, where we felt that we were ready to go. We felt we were ready to essentially take it to the next step. But in our conversations with the regulators, they shared with us that there was this President’s Working Group that was going to be reconvening to discuss how stablecoins should be regulated. Then, just months later, things changed. What happened?