Led by the Diem Association, the Diem Dollar is a stablecoin backed by the US Dollar. The objective of Diem is to make it simple and easy for people around the world to send and receive money. But contrary to popular belief, the driving force behind the Diem Dollar is not just Facebook. Actually the Diem Dollar is founded by a group known as the Diem Association. The Diem Association is an entity made up of a partnership between 27 companies which form part of the consortium.
As the Diem Association plans for the launch of Diem in the coming year, it’s good to understand what the association is, what it does, and how it works.
A Short History of the Diem Association
In June of 2019 the Libra Association officially announced the launch of the Libra project. Similar to today’s Diem, the association envisioned the Libra Coin as a stablecoin backed by a fiat currency –– or multiple fiat currencies.
Though the Diem we know today is a single-basket stablecoin, Libra was initially proposed as a multi-basket coin which would represent several fiat currencies such as the US Dollar, European Euro, and British Pound.
At the time, the announcement included a planned launch date in 2020, but 2020 came and went without any big coin release. Behind the scenes, the Libra Association was facing roadblocks from global financial authorities like the World Bank Group, G7 and IMF.
One of the main concerns of these institutions was that the multi-currency Libra Coin would pose a threat to monetary sovereignty. Their fear was that Libra would grow too big, too fast and in the long run threaten to replace smaller local fiat currencies.
That same year the Libra Association engaged in extensive discussions surrounding monetary sovereignty, money laundering and international regulatory compliance. Without getting into the nitty-gritty, the association proposed a revised structure to its project: a new single-basket currency which would leverage permissioned blockchain technology. They dubbed the project Diem. Now the Diem Association’s new plan for a single-basket stablecoin backed by USD is closer than ever to launching.
The Responsibility of the Diem Association
The Diem Association is an independent membership organization that’s in charge of supervising the launch, growth and day-to-day operations of the Diem payment system and network. Since the Association’s responsibilities are wide-ranging, each member fulfils varying roles and responsibilities within the organization.
One of the most important roles of the Diem Association is to ensure that the Diem Dollar maintains its value. As a stablecoin, Diem is pegged to the US Dollar. This means that its value will only change relative to the price of USD. Association members are responsible for overseeing the Diem Reserve which protects users’ funds by ensuring they are backed 1:1 with cash and cash equivalents.
Another responsibility of the Diem Association is to make sure that the Diem payment system is compliant with local regulatory policy. According to the Diem Association, the Diem Dollar is designed to complement existing currencies. That means it’s part of the association’s responsibility to ensure that the Diem currency can smoothly integrate into the global financial system.
The Diem Association has dedicated roles which make sure the association’s activities are fully legally compliant. Members of the Diem Association are also responsible for monitoring Diem’s permissioned blockchain and preventing fraud on the Diem network.
Diem aims to develop rapidly and become a major cryptocurrency in just a few short years. Part of the association’s purpose is to develop new functionalities and help the payment system scale. In keeping with the goals of the Diem project, the association wants to make Diem an affordable payment method that fosters financial inclusion.
See Also: What is the Novi Wallet
The Inner Workings of the Diem Association
The Diem Association is essentially a non-profit organization headquartered in Geneva, Switzerland. The truth is, that while the Diem payment system is yet to launch, the Diem Association is already a fast growing enterprise.
With dozens of varying roles, councils, and even a board of directors, it’s easy to lose track of its structure. Here, we’ll break down how the Diem Association works from the inside out.
Diem Association Members
The Diem Association is made up of 27 member organizations. Contrary to what you might think, members of the project work independently from Facebook. Facebook itself has a single governing vote at the Association just like all other 26 members of the organization.
Hailing from a diverse set of countries, organization members represent a wide range of sectors and industries. Some come from the world of finance and telecom while others represent the non-profit industry.
Non-for-profit members include Women’s World Banking and the micro-loan pioneer Kiva, and other prominent Diem Association members include Uber, PayU, Spotify, Coinbase, and Checkout.com.
Diem Association Voting
The Diem Association’s voting system is very simple. All major policy decisions concerning the operation and development of Diem go through Association Council voting. Each of the Association’s 27 member organizations has a representative at the Association Council.
For a vote to pass, two-thirds of the Association Council representatives need to agree on it. This is a tried-and-true supramajority consortium structure that has remained since the days of the Libra Association.
Diem Association Board of Directors
Although all 27 members of the Diem Association have a say in major policy decisions, the board of directors handles minor decisions and everyday management of the Association. The Diem Association’s board of directors is made up of six members elected by the Association Council.
Today, these members are the General Counsel of PayU, the CEO of Xapo, the CSO of Kiva, the General Partner of Andreessen Horowitz, and the Head of Novi.
The Role of FINMA
The Diem Association has made it clear in their White Papers that if and when Diem receives all of the licensing it needs, the Swiss Financial Market Supervisory Authority FINMA will remain heavily involved in the Association.
While members have a lot of freedom when it comes to making administrative changes and introducing new services, they will have to go through FINMA first. This will ensure that the Diem Association remains fully compliant with international monetary policy as it expands and scales globally.
The Future of the Diem Association
Diem is emerging as one of the leading global cryptocurrencies and over time the Diem Association will need to remain flexible to adapt to the major changes that Diem’s growth will bring.
Here are some of the key changes that the Diem Association is expected to go through in the future with the development of the Diem cryptocurrency.
1. Introducing New Members
The Libra Association lost a few prominent members from the financial industry before it rebranded itself as the Diem Association. In the future however, the Diem Association hopes to gain more members from prominent corporations. The official Diem whitepaper emphasizes the need for more diverse members, representing different geographical areas and sectors.
2. Procedures for Improvement
As soon as the Diem currency launches, the Diem Association will need to adapt and revise its policy to promote growth. That’s why the Diem Association plans on creating new roles within the association to popularize the use of Diem payments.
The Diem Association will also need to create new procedures for managing improvements to the Diem blockchain. As the Diem whitepaper highlights, the Association plans on working with open-source methodology to keep its blockchain secure. This will require new frameworks that can combine the benefits of open-source technologies with those of a permissioned blockchain.
New Procedures for Social Impact
Moving forward, one of the primary goals of the Diem Association will be to promote financial inclusivity. This includes making Diem payment systems available to unbanked and underserved communities.
The Diem Association is already devising new roles and protocols for creating grant-making programs and which will aim to include marginalized communities in its future projects. In the future, social impact will remain a priority of the Diem Association as it strives to create Diem as an accessible mode of payment for everyone globally.
Learn More About the Diem Association
To learn more about the Diem Association and how it works, we recommend reading the Association’s extensive White Paper outlining the structure of the organization and all its inner-workings.