Is Paxos the New Diem? The Stablecoin Issuer’s Facebook Pilot Just Expanded to 2B WhatsApp Customers

Novi Facebook

Facebook’s controversial Novi stablecoin wallet just debuted on WhatsApp, the Facebook-owned messaging service with 2 billion customers.

The ability to send stablecoin payments over WhatsApp, the world’s largest messaging service, is limited to some U.S. customers — not New Yorkers, for example.

The social media giant now known as Meta caused worldwide outrage two years ago, when its plan to allow customers to make payments via a dollar-pegged cryptocurrency called Libra — since renamed Diem, and well stalled — that scared central bankers, political leaders and financial regulators around the world with visions of a global currency that could overpower their national fiat currencies and destabilize the world’s financial order.

Read more: House Lawmakers Call Libra A Dangerous Threat

In a Dec. 8 Twitter announcement, Novi’s incoming leader, Stephane Kasriel, said “we often hear that people use WhatsApp to coordinate sending money to loved ones, and Novi enables people to do that securely, instantly and with no fees.”

Payments, he added, will appear directly in people’s chat.

The Novi wallet uses the heavily regulated firm Paxos’ Pax Dollar (USDP), the seventh-largest stablecoin, with a market cap of about $950 million. The two largest stablecoins, tether and USD coin, have market caps of $76 billion and $42 billion respectively.

Novi transactions will be instant, free, and will not affect WhatsApp’s end-to-end encryption, the company said on the Novi website.

They will also require users to provide government-issued photo ID cards, and in some cases video selfies. Aside from the account security, this will allow WhatsApp to ensure transaction meet international anti-money-laundering (AML) laws.

Along with anti-fraud monitoring and two-factor authentication, WhatsApp’s Novi/Paxos transactions will offer something largely unheard of in the crypto world: a “full refund for unauthorized transactions.”

Given that blockchain transactions are immutable — unchangeable and therefore irreversible — and that money can be added to Novi wallets by debit card, this will inevitably require some kind of insurance on Meta’s part.

Move Fast

The announcement comes in the wake of a small-scale, six-week trial in Guatemala and the U.S. During that pilot project, “we’ve been able to test and learn which features and functionality are most important to people, and focus our efforts on making those even better,” Kasriel said.

Kasriel replaces David Marcus, who announced plans to step down as head of Novi and Meta’s FinTech division on Nov. 30, citing the nudging of his “entrepreneurial DNA.” He will depart at the end of the year.

See: David Marcus Departs Facebook, Along With the Last Remnant of Libra’s Battered Brand

In a Facebook post, Marcus called the WhatsApp rollout “another small step in the right direction” and “the best farewell gift from the best team ever.”

Unsaid but likely a factor is Marcus’ unwillingness to again be the whipping boy of finance ministries, international financial organization, and regulators as Mark Zuckerberg seeks to take stablecoins from a tool used mostly by bitcoin and cryptocurrency traders to an in-house currency usable anywhere from Australia to Zimbabwe.

Read also: Facebook Continues Libra Push Despite Major Setbacks

The subject of fierce political attacks, Marcus led the retreat from Libra as a global stablecoin backed by a single basket of many currencies including the dollar and euro to Diem, a series of national stablecoins backed by local currencies.

Break Things

There hasn’t been much of an outcry yet, but it’s likely that one is coming.

The announcement came a day after Rep. Maxine Waters (D-Cal.), the head of the House Financial Services Committee, blasted the CEO of Paxos for bringing its Pax Dollar stablecoin to Facebook’s Novi digital wallet in a hearing on “Digital Assets and the Future of Finance.”

Read here: Scenes From the Five-Hour Congressional Hearing on Crypto

Rep. Waters directed the first question of a four-hour Q&A to Paxos CEO Charles Cascarilla, saying, “I’m a bit concerned about your company. Paxos’s partnership with Facebook, which is now calling itself Meta. As you know, Facebook has attempted several times to enter the cryptocurrency market starting in 2019.”

Citing the political opposition to the project then and now, Rep. Waters added, “Now in partnership with Paxos, Facebook has launched a pilot project with this digital wallet Novi. What is stopping Facebook from in the future allowing its nearly 3 billion monthly active users to make payments and save funds with a Pax dollar or other previously issued stablecoin through a Novi wallet?”

Well, nothing, it seems.