Facebook has launched a pilot project for its digital payments app Novi and, courtesy of partnerships with Paxos and Coinbase, will use USDP (Pax Dollar) rather than its Diem stablecoin. The pilot will involve users in Guatemala and the U.S., enabling them to send money to their contacts internationally via the Novi app. The fund transfers are instant, secure, and fee-free.
The decision to use USDP, according to Novi head David Marcus, was not intended as a negative change-of-heart toward Diem. “Our support for Diem has not changed,” Marcus said. “We intend to migrate Novi to the Diem payment network once it (receives) regulatory approval.” He added that using USDP for the pilot project would enable the team to test the technology with a stablecoin that had both a track record of successful operation, as well as “important regulatory and consumer protection attributes.”
First introduced two years ago (as Libra), Diem was initially planned for a 2020 release. However, regulatory concerns emerged almost immediately. For some, the issue was Facebook’s role itself and the potential problems of a for-profit corporation issuing currencies. Others worried about how to classify the technology, as well as how to effectively regulate the Libra platform – especially if the technology was used to help Facebook expand into banking and lending services. These concerns, and Facebook’s apparent inability to respond to them thoroughly, led to a number of high-profile withdrawals from the project, as Mastercard, PayPal, Stripe, and Visa all elected to exit the Libra Association, an organization established to oversee the development of the technology. In November 2020, the project was revised so that Libra would be backed by a single currency, the U.S. dollar, on a one-to-one basis rather than backed by a basket of multiple currencies as previously planned. The project was also rebranded “Diem.”
In the current project, Novi will use the USDP for transactions, and Coinbase will serve as the custody partner. But as far as Facebook is concerned, the selection of the Pax Dollar over Diem at this point is more of a tactical retreat than a strategic withdrawal. “We believe a purpose-built blockchain for payments, like Diem, is critical to deliver solutions to the problems that people experience with the current payment system,” Marcus explained.
That said, even the new project continues to face criticism, with a handful of senators – including Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts – urging Facebook to suspend the project immediately. “Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risk and keep consumers safe has proven wholly insufficient,” the senators said in a statement.