Facebook-backed crypto project Libra, also known as Diem, will likely not see a resurgence with the collapse of Silvergate. The saga leaves a cautionary tale for investors to learn from.
What is Libra?
A digital currency project proposed by Facebook in 2019, Libra faced regulatory resistance from the U.S. Federal Reserve.
Libra was then later renamed to Diem in an attempt to re-brand as the project scaled down its ambitions to launch a cryptocurrency that was backed by a wide mixture of currencies and short-term government debt to just launching a stablecoin pegged to the US dollar.
The project was acquired in January 2022 by Silvergate and never launched, as the crypto-friendly bank collapsed.
The failure of Libra or Diem, the cryptocurrency project initiated by Facebook (now Meta), can offer some valuable lessons for investors in the crypto space.
Here are some of them:
Be wary of mixing business and politics.
One of the main reasons why Libra or Diem faced so much opposition and regulatory hurdles was because it was closely associated with Facebook, a company that has been under scrutiny for its privacy, antitrust, and social impact issues.
Many governments and central banks saw Libra or Diem as a threat to their monetary sovereignty and financial stability.
Investors should be aware of the political risks and challenges that come with backing a cryptocurrency project that is linked to a controversial or dominant company.
Do your research before investing.
Libra or Diem was announced with much fanfare and hype in 2019, but it turned out to be a very different project than what was initially envisioned. The original plan was to create a global digital currency backed by a basket of fiat currencies and managed by an independent association of diverse members.
However, over time, the project changed its name, location, structure, and design, opting for a more compliant and conservative approach that involved issuing multiple single-currency stablecoins pegged to the US dollar and partnering with a US bank.
Investors should not blindly trust the promises or visions of a cryptocurrency project, but rather do their own due diligence and research on its feasibility, viability, and credibility.
Don't put all your eggs in one basket.
Libra or Diem was supposed to be a game-changer for the crypto industry, bringing billions of users and mainstream adoption to the space. However, after almost three years of delays, setbacks, and changes, the project ultimately failed to launch and was sold off to another entity.
Investors who were hoping to profit from Libra or Diem may have missed out on other opportunities or suffered losses from holding on to a doomed project. Investors should diversify their portfolio and not rely on one single cryptocurrency project to succeed.
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