Facebook is launching a small pilot of its cryptocurrency wallet named Novi. A limited number of people in the United States and Guatemala can sign up for and start using Novi.
Instead of issuing its own stablecoin (Diem) on its own blockchain (the Diem network), the company is partnering with Paxos and Coinbase to allow users to send and receive USDP, with Coinbase handling the custody of cryptos. But this is only an interim step as Facebook is still planning to replace USDP with Diem at some point.
Facebook originally had big plans for its crypto project. The company has created a consortium of companies called the Libra Association. Together, they were supposed to launch the Libra cryptocurrency, a brand new currency tied to a basket of fiat currencies and securities. Originally, it would not be based on a single real world currency, but on a mixture of multiple currencies.
But Facebook faced strong opposition from many central banks – they feared Libra could become a quasi-sovereign currency in some countries. Last year, the association announced that it would scale back its ambitions by focusing on single currency stablecoins.
A stablecoin is a crypto asset with a fixed value that does not fluctuate over time. For example, the Libra association wanted to launch the LibraUSD. A LibraUSD would always be worth a USD.
A few months later, the Libra association again announced some changes. The project was renamed to the Diem association. Likewise, Facebook’s portfolio project was renamed from Calibra to Novi. But neither Diem nor Novi were ready for prime time.
And now Facebook will start testing Novi with real users. The company focuses on remittances between the United States and Guatemala. Novi users who want to send money can download the Novi app, create an account, and add money using a payment method, such as a debit card.
Each time you add USD, your money is converted to USDP at no cost. USDP is a USD linked stablecoin created by Paxos. It used to be called the Pax Dollar (PAX), but recently Paxos renamed it USDP.
Behind the scenes, USDP is backed by cash and cash equivalents to secure its value. User funds are managed by Coinbase Custody, which means Coinbase stores USDP funds for Novi users.
Novi users can then send USDP to other Novi users. Again, there are no fees associated with money transfers. But there’s a good chance you can’t use Novi to pay in store or pay your rent. That’s why users can withdraw their Novi balance from a cashier or transfer their balance to a bank account.
But Novi doesn’t say if there are any fees to pay when you convert your USDP to Guatemalan Quetzal. We are therefore back to square one because Novi has to choose an exchange rate, which involves the spread, liquidity and other variables. Novi must also create fiat-to-crypto entry and exit ramps in any markets where it wishes to operate.
Facebook says this is just the start for Novi. Firstly, it is only available as a pilot for certain users in Guatemala and the United States (except Alaska, Nevada, New York and the United States Virgin Islands). Second, Facebook and the Diem Association haven’t given up on their plans to launch their own cryptocurrency at some point.
“I want to be clear that our support for Diem has not 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, ”Novi project leader David Marcus said on Twitter.
Facebook unveiled the Libra cryptocurrency in June 2019. The crypto ecosystem has changed dramatically since then. In particular, some stablecoins have become incredibly popular – Tether and USD Coin currently have a combined circulating supply of over $ 100 billion. So it will be interesting to see if Diem can catch up with existing stable coins and unlock new use cases.