The Facebook-led cryptocurrency project Diem is leaving Switzerland. Reasons for the decision and the impact on the Swiss blockchain ecosystem.
Facebook had chosen Switzerland for a reason when they first launched their cryptocurrency Libra. At the time, they knew this would bring trouble. So registering the Libra Association in Geneva looked like a good idea. Switzerland has one of the most advanced fintech regulatory regimes globally and is generally seen as “crypto-friendly.” It should provide a good setting for the Libra team to sort things out while the fighting took place in the US.
Well, many things have changed by now.
For one, Libra is now called “Diem.” The name has changed, and so has the concept. Diem is now a stablecoin pegged to a basket of different currencies. Far from the unpegged cryptocurrency Libra was set out to be.
Diem has decided to leave Switzerland
It’s not yet clear whether the Diem Association will leave Switzerland as a whole or keep parts of it in the country. But it did announce a “strategic shift to the United States, resulting in a move of Diem’s primary operations from Switzerland to the United States.”
That came a little surprising, especially considering that it was close to obtaining a payment system license by the Swiss regulator Finma. The relationship with Finma was not nearly as troubled as with authorities in other countries. In fact, Finma has tried to accommodate the project, despite much international resistance.
So why leave?
Pressure by US lawmakers must have been enormous. From a US point of view, there are many good reasons why a project that has the potential to disrupt payments systems, with access to billions of users and a massive USD base should be located in the US and not Switzerland. Diem was likely forced to move to the US by political interests.
Also, Diem has faced opposition from the European Union, which resists the idea of a Euro-pegged private stablecoin that might compete with the fiat euro. That might have been another reason to ditch Europe in favor of the US. Although Switzerland is not an EU-member state, it’s still located right in the heart of Europe and therefore subject to the European political environment.
Diem moving to the US certainly means a heavyweight is leaving. For the US, it’s an important add-on to the US blockchain ecosystem, where companies like Coinbase and Kraken are based under the SEC regime.
But Diem leaving might not be that bad for Switzerland
Diem is a project with a certain prestige for Switzerland, but it also has had some negative effects on the blockchain industry.
Finma has dedicated much of its resources to Diem, resulting in longer waiting times for others. Finma has also updated its regulatory guidance after Diem arrived, forcing some blockchain companies to change their plans. Some projects even left Switzerland for places like Liechtenstein or Gibraltar. Finma’s attitude towards crypto projects also hardened with Diem, considering that the project could have been such a gamechanger. That, too, had an impact on other projects.
Will Diem return? Unlikely. The Diem saga will continue in the US, at least for now.