The objective of Diem is to make it simple and easy for people around the world to send and receive money. The driving force behind the Diem project is a group known as the Diem Association, an entity made up of a partnership of 27 big tech companies which form part of the consortium. As the Diem Association plans grow rapidly in the coming years, it’s good to understand what the Association is, what it does, and how it works.
The Role of the Diem Association
The Diem Association is an independent membership organization that’s in charge of supervising the launch, growth, and operations of the Diem payment system. Since the Association’s responsibilities are wide-ranging, each member fulfils varying roles and responsibilities within the organization.
Maintaining the Diem Reserve
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. In order to preserve the long-term stability of a stablecoin, the cryptocurrency must maintain a reserve that ensures the stablecoin can hold its own wealth in value.
Members of the Diem Association are responsible for maintaining and overseeing the Diem Reserve which protects users’ funds by ensuring they are backed 1:1 with cash and cash equivalents. That means, if Diem users want to redeem 100 Diem Dollars, the Diem Association will give you the equivalent value it holds in its reserve.
Ensuring Regulatory Compliance
Another responsibility of the Diem Association is to make sure that the Diem payment system is compliant with local regulation and policy. According to the Diem Association, the Diem Dollar is designed to complement existing currencies. That means it is part of the Association’s responsibility to ensure that the Diem currency is able to integrate into the global financial system without posing any threat to the stability of local economies.
The Diem Association has dedicated roles that make sure the Association’s activities are fully compliant legally. Members of the Diem Association are also responsible for monitoring Diem’s permissioned blockchain and preventing fraud on the Diem network.
Scaling Diem Globally
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.
How the Diem Association Works
The Diem Association is headquartered in Geneva, Switzerland and is made up of 27 companies. With dozens of varying roles, councils, and even a board of directors, it’s easy to lose track of its structure. Here’s a simple breakdown of how the Diem Association works from the inside out.
The Diem Association is made up of 27 member organizations that function independently of Facebook. Facebook itself has a single governing vote at the Association Council, just like all other 26 members of the Diem Association.
As well as coming from many different countries, these member organizations represent a wide range of industries. Some come from the e-commerce and financial sectors, while others come from telecom and are non-profits.
“Some of the most prominent Diem Association Members you may recognize include Uber, Lyft, Spotify, Coinbase, Checkout.com, and PayU. Not-for-profit member corporations also include Women’s World Banking and the micro-loan pioneer Kiva.”
In 2019, Diem Association Members signed the Diem Association Charter which established the creation of the Diem Association Council. The council is made up of one representative from each member of the consortium. That means each of the Association’s 27 member organizations has a representative on the Diem Association’s Council which is designed to ensure that each has the same privileges and obligations as the others. See How Diem Works
Board of Directors
In addition to the Association Council, a five-member board of directors is elected to carry out the day-to-day management and representation of the Diem Association. Although all 27 members of the Association have a say in major policy decisions, the board of directors handles the minor everyday management. 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 way the Diem Association’s voting system works is very simple. All major policy decisions concerning the operations and development of the Diem cryptocurrency go through the process of Association Council voting. In order to pass a vote, two-thirds of the Association Council representatives need to agree. This is a tried-and-true supramajority consortium structure that has remained since the days of the Libra Association.
The Role of FINMA
The Diem Association has made it clear in the White Papers they’ve released that the long-term the Swiss Financial Market Supervisory Authority FINMA will remain heavily involved in the ongoing operations of the Association.
That means while Association members have a lot of freedom when it comes to making administrative decisions and introducing new services, they will have to go through FINMA first for approval. The partnership will help ensure that the Diem Association remains fully compliant with international monetary policy as it expands and scales 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.