Facebook has launched a long-awaited pilot of its digital currency wallet Novi in the US, but has chosen to use the Paxos Dollar stablecoin after its own cryptocurrency Diem failed to get backing from regulators.
In a blog post on Tuesday, David Marcus, head of Facebook’s Novi wallet, announced that the company had started the pilot in parts of the US, as well as Guatemala.
Users could download the app on iPhones or Android and register with a government-issued ID, said Marcus, adding that transferring money between wallets would be free. Coinbase, the US cryptocurrency exchange, is providing custody services for Novi.
Andreessen Horowitz, the venture capital firm, is an investor in Coinbase, and Marc Andreessen, its co-founder, sits on Facebook’s board.
The decision by Facebook to use an existing stablecoin rather than Diem, which Novi was originally designed to hold, reflects the difficulties in getting the latter Facebook-initiated project off the ground.
The sector as a whole has faced questions over consumer protection, money laundering and monetary stability. But regulators have expressed particular concerns over the scandal-hit social media giant operating its own currency since it announced the initiative in 2019, alongside a group of backers that include tech businesses and non-profit organisations.
Marcus, also the executive who initially spearheaded Diem, said the company’s support for Diem “has not changed”, adding: “We intend to migrate the wallet to the Diem payment network once it receives regulatory approval.”
He also said he intended for Novi to be interoperable with other digital wallets in the future.
Stablecoins, which are pegged to assets such as dollars, have been a vital conduit for customers looking to transfer from fiat currencies to cryptocurrencies.
But the Financial Stability Board warned in October that a “global stablecoin” could “challenge the comprehensiveness and effectiveness of existing regulatory, supervisory and oversight approaches”.
Paxos Dollar is the eighth-largest stablecoin, according to cryptocurrency data provider CoinGecko. But it makes up less than 1 per cent of a $130bn industry dominated by market leader Tether, followed by USD Coin, run by Coinbase and payments company Circle.
Paxos has positioned itself as a more responsible currency, and received “preliminary conditional approval” for a US bank charter from the Office of the Comptroller of the Currency in April.
“Paxos has paved the way in crypto by building regulated solutions within established frameworks,” Walter Hessert, head of strategy at Paxos, wrote in a blog post.
Marcus said that Paxos Dollar had been chosen because its reserves were 100 per cent held in cash and cash equivalents, allowing users to easily withdraw money in their local currency.
While Diem originally sought to create a synthetic cryptocurrency backed by a basket of currencies and was based in Switzerland, it has since moved to the US to focus on launching a single stablecoin backed one-for-one by the dollar. Its backers include Coinbase and Andreessen Horowitz.
Nevertheless, a group of Democratic senators including Brian Schatz, Sherrod Brown, Richard Blumenthal and Elizabeth Warren on Tuesday called for Facebook to shut down the project, as well as Novi.
“Facebook is once again pursuing digital currency plans on an aggressive timeline . . . even though these plans are incompatible with the actual financial regulatory landscape — not only for Diem specifically, but also for stablecoins in general,” the senators wrote in a letter to Mark Zuckerberg, Facebook’s chief executive.
“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.”
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