A group of U.S. lawmakers called on Facebook to halt its cryptocurrency and digital wallet project Novi hours after its pilot launch began on Tuesday, amid the company’s ongoing trust crisis. Senators Brian Schatz (D-HI), Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Richard Blumenthal (D-CT) and Tina Smith (D-MN) said the tech giant “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,” according to a letter to Facebook chairman and CEO Mark Zuckerberg on Tuesday.
Fast facts
- The senators said Facebook failed to explain how Facebook-backed crypto project Diem will prevent “illicit financial flow and other criminal activity” and maintain users’ privacy in addition to financial stability.
- “Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape — not only for Diem specifically, but also for stablecoins in general,” the letter read.
- Facebook’s Novi is an open-source digital wallet that allows users to trade the Paxos stablecoin (USDP) in a custody partnership with Coinbase. The pilot went live in the U.S. and Guatemala on Oct. 19. Coinbase Global stock has seen a 4.1% jump in premarket trading, according to SeekingAlpha’s report.
- The backlash over Facebook’s Novi began when the company first introduced in June 2019 the plan to launch its own digital currency Libra (now rebranded as Diem) and soon stirred a strong backlash by regulators. The letter’s initiators, Schatz and Brown, previously wrote to members of the Libra Association in October 2019 to express their concerns about Facebook appearing to “want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company.”
- The lawmakers’ criticism of Facebook’s digital currency has added to the company’s trust crisis, including former employee turned whistleblower Frances Haugen’s testimony in Washington earlier this month about the social network negatively impacting young people.
