Earlier this year, Meta Platforms (META -0.52%) sold off its holdings in Diem Association -- the cryptocurrency project it had been working on the last few years with other tech and digital payments companies. Crypto bank Silvergate Capital (SI 9.76%) was the buyer of the Diem assets, but it was still unclear what would become of Meta's Novi digital wallet.
One year after beginning a pilot program, it looks like Novi is now closing up shop and will no longer be available for use after Sept. 1, 2022. Basically, all of Meta's financial value is derived from advertising (and a little from virtual reality), so Novi's closure will be immaterial to the bottom line. But it's still a temporary setback for the company and its aspirations to build a full-blown digital economy to accompany its apps. Here's what shareholders need to know.
What exactly were Diem and Novi again?
Diem Association (previously known as Libra) was a cryptocurrency project partnership. It was backed by Meta and some other tech companies as it developed a digital payments system using blockchain technology -- the same digital ledger software employed by cryptos like Bitcoin and Ethereum.
In January 2022, it was announced that certain assets of Diem Association were being sold at a loss to Silvergate for $200 million. Silvergate is planning to use the assets to speed up the development of its own stablecoin-based digital payments platform. Split between its other tech partners, $200 million in total proceeds -- let alone small losses from the sale -- are an immaterial sum for Meta and the tens of billions of dollars of revenue it hauls in every quarter.
However, at least one other Diem Association partner, Shopify (SHOP -2.37%), graced shareholders with some details on its losses from the sale. Shopify recorded a $1.66 million loss and received $8.3 million in Silvergate Capital stock at the time of Diem Association's sale in January.
But Diem wasn't Meta's only iron in the cryptocurrency fire. Last October, it started testing out the use of Novi, a blockchain wallet that could be used for remittances -- money transfers that are made to a recipient in another country. Novi's pilot program was available to users in the U.S. and Guatemala, and was using Paxos' stablecoin. The project had been launched with the help of Coinbase Global. But this last remnant of the Diem crypto project is now being shuttered, according to an announcement on Novi's website on July 1.
Novi users have been informed they need to withdraw funds by Sept. 1, 2022, since the digital wallet will no longer be available for use after that date.
Are Meta's digital asset dreams dead?
Though it appears Meta is done (at least for now) trying to build a new cryptocurrency or blockchain-based payments network, that doesn't mean digital payments are out of the equation altogether. In its Q1 2022 quarterly filing under the list of "business risks," Meta called out payment transactions and digital payments initiatives as factors that increase regulatory scrutiny into its operations.
Besides Novi, Meta has payments and money transfer capabilities (albeit not crypto-powered ones) embedded in its apps. WhatsApp payments is still a pilot program in Brazil, India, and for select users in the U.S. Meta Pay is also used within Facebook and Instagram for online checkout and money transfers.
Back in the world of crypto and its overlap with the metaverse, Meta is also apparently working on a non-fungible token (NFT) marketplace. Other projects that bring a digital economy to its apps and virtual reality products (the Quest 2 VR headset) are also no doubt underway.
However, with 97% of its revenue tied to advertising in Q1 2022 (with the rest attributed to "Reality Labs," which is mostly Quest 2 and related VR sales), Meta has a long way to go before payments of any kind are a meaningful part of its business. Novi is the last shred of Diem that is closing down, but you should expect other projects to emerge in the social media titan's quest to make the metaverse happen.
