Facebook Crypto Plans Scaled Back

Facebook Launches Novi: A Cryptocurrency Wallet Pilot Program

Facebook is initiating a limited trial run of its digital wallet, Novi. Access to this pilot program is currently restricted to a select group of individuals located in both the United States and Guatemala, allowing them to begin utilizing the wallet’s features.

The Path to Novi: From Libra to Diem

As a founding member of the Diem Association, Facebook initially intended to leverage the association’s stablecoin, Diem, on the Diem network. However, the company has chosen to collaborate with Paxos and Coinbase to facilitate the sending and receiving of USDP for users, with Coinbase handling the secure storage of the cryptocurrency.

This arrangement is viewed as a temporary measure, as Facebook retains its objective of eventually integrating Diem into the Novi wallet.

Original Ambitions and Regulatory Challenges

The initial vision for Facebook’s crypto endeavor was considerably more ambitious. A consortium of companies, known as the Libra Association, was formed with the goal of launching Libra, a novel cryptocurrency.

This proposed currency was designed to be anchored to a diversified portfolio of fiat currencies and securities, rather than being tied to a single national currency.

However, the project encountered substantial resistance from numerous central banks, who expressed concerns that Libra could potentially evolve into a quasi-sovereign currency within certain nations.

Consequently, the association revised its scope last year, shifting its focus towards single-currency stablecoins.

Understanding Stablecoins

A stablecoin is a type of crypto asset engineered to maintain a consistent value, avoiding the volatility often associated with other cryptocurrencies.

For example, the Libra Association had planned to introduce LibraUSD, where one LibraUSD would consistently equate to one US dollar.

Rebranding and Continued Development

Subsequently, the Libra Association underwent a rebranding, becoming the Diem Association. Similarly, Facebook’s wallet project was renamed from Calibra to Novi.

Despite these changes, both Diem and Novi remained in a development phase, not yet ready for widespread release.

Novi Pilot Program Details

Now, Facebook is commencing testing of Novi with a limited number of users.

The initial focus is on facilitating remittances between the U.S. and Guatemala.

Users participating in the Novi pilot can download the Novi app, establish an account, and fund it using a payment method like a debit card.

USDP Integration and Custody

When users deposit USD, it is automatically converted into USDP without incurring any fees.

USDP, formerly known as PAX, is a stablecoin pegged to the US dollar, created by Paxos.

The value of USDP is maintained by being fully backed by cash and cash equivalents.

User funds are securely managed by Coinbase Custody, ensuring the safe storage of USDP for Novi users.

Transferring and Withdrawing Funds

Novi users can send USDP to other Novi users without any transfer fees.

However, the current functionality does not support direct in-store payments or rent payments.

Users can access their Novi balance by withdrawing funds at designated cash locations or transferring them to a traditional bank account.

Exchange Rates and Future Expansion

Currently, Novi does not disclose any potential fees associated with converting USDP to Guatemalan quetzal.

This necessitates Novi to establish an exchange rate, which involves considerations such as spread, liquidity, and other market variables.

Furthermore, Novi must develop robust fiat-to-crypto on-ramps and off-ramps for all markets in which it intends to operate.

Looking Ahead

Facebook emphasizes that this pilot program represents only the initial phase for Novi.

The program is presently available only to a select group of users in Guatemala and the U.S., excluding residents of Alaska, Nevada, New York, and the U.S. Virgin Islands.

Moreover, Facebook and the Diem Association have not abandoned their plans to launch their own cryptocurrency in the future.

Diem Remains a Priority

David Marcus, the lead of the Novi project, stated on Twitter, “I do want to be clear that our support for Diem hasn’t changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live. We care about interoperability and we want to do it right.”

The Evolving Crypto Landscape

Facebook initially introduced the Libra cryptocurrency in June 2019.

The cryptocurrency ecosystem has undergone significant changes since then, with certain stablecoins, such as Tether and USD Coin, achieving substantial popularity, boasting a combined circulating supply exceeding $100 billion.

It will be interesting to observe whether Diem can compete with these established stablecoins and unlock new applications.