Exclusive: Meta has frozen development of its Novi digital wallet project, sources close to the matter have told "Globes." The project was originally planned for trading in Facebook's cryptocurrency - an activity that has been halted. Following this latest step, Facebook will disband several teams in the US and at the company's development center in Israel, new tasks are being sought for the risk management technology division, which was set up to provide services for the digital wallet.
This latest step comes as Meta has begun 2022 by cleaning its desk. Last week "Globes" reported on the closure of its Israel-led Express-Wi-Fi project for Wi-Fi networks in developing countries.
While suspending the Novi digital wallet project, Meta is examining the possibility of transferring more financial services to Facebook Pay - another wallet infrastructure that the company has already opened - thus leaving Novi as an NFT trading platform for creating digital art or animated games accessories. Due to the fact that Novi activities are at the expense of the Facebook Pay infrastructure, which is already used on platforms like Facebook Stores and Facebook Marketplace, the company is grappling with the question of if there is any point in continuing Novi's development. Despite the freezing of most of Novi's financial development activities, the project's pilot in the US and Guatemala, which began last October, will continue.
The end of the cryptocurrency adventure
Meta's global operations in the digital wallet sector impacts hundreds of the company's employees including at least 100 in Israel. The freezing of Novi probably won't lead to layoffs but many employees may be required to find new positions. Facebook's Israel development center, located in TelAviv in the Azrieli Sarona tower and the Rothschild 22 tower recently reached a new peak of 1,000 employees, many of whom are now confused about their future roles.
Meta is now mulling transferring its Israeli risk management division, headed by Ori Modai, to the wallet that will support NFTs. Meta is also considering giving the Israeli division responsibility for the development of infrastructures of all Facebook fintech products, called F2 and formerly called Facebook Financials. This has recently undergone rebranding with Meta recently deciding to call the digital wallet, which has now been frozen, Novi.
Freezing Novi represents a further retreat by Meta (Facebook) from its far reaching cryptocurrency strategy. The company previously had ambitions to operate an alternative digital economy alongside the traditional currency economy. Last week Facebook shut down its Diem blockchain-based stable-coin payment system and sold the Diem Association, which was promoting it, to the Silvergate Bank.
Meta hinted that the decision to sell came from the Diem Association, which apparently operates independently from the company. Novi fintech unit's new head Stephane Kasriel tweeted that he hopes that the sale of Diem will help it grow and realize "the vision of financial inclusion." In this way the curtain came down on Facebook's cryptocurrency adventure.
In 2019, Facebook launched its Libra project as part of its vision of establishing a global digital currency that would serve customers that banks are not serving. The plan was to establish it as a stable-coin, in other words a cryptocurrency linked to another asset and based on international currencies like the dollar and the euro, and through which commercial companies would join Facebook. The company transferred the operations to Switzerland and set up an association to manage the development of the currency and market it to commercial companies and central banks, allegedly without Facebook's involvement.
However, the efforts failed because the regulators in Switzerland and the US opposed the trading arrangements in the currency and the commercial companies were not eager to climb onto the bandwagon. In 2020, the currency was given a facelift and rebranded as Diem. Management was brought back to the US and in May 2021, Facebook formed a collaboration with Silvergate in order to launch a stable-coin currency linked only to the US dollar, and not to other international currencies, as originally planned. Diem was to operate as an active currency via WhatsApp.
"The right project by the wrong company"
Continued lack of trust by the US regulators resulted in confrontations between Facebook and the US Treasury and Federal Reserve. The regulators were concerned that Facebook would create a global currency that would compete with the major currencies and might harm the privacy of users.
At the end of 2021 Facebook's top crypto executive David Marcus left the company. Having previously served as president of PayPal, Marcus joined Facebook in 2014, with the aim of making the company a fintech giant. Another top Facebook-Novi crypto executive Tomer Barel stepped down a few days ago, having led the development of Meta's digital wallet in Israel.
Behind Meta's plans to establish a digital wallet and transnational cryptocurrency were good intentions. The concept of serving the billions of customers who do not have bank accounts and free them from the chains of institutional banking was not necessarily a bad idea. It might have even had a chance had it not been promoted by Facebook.
But the reputation gained by Facebook, among US administration figures and among regulators, since the Cambridge Analytica affair was exposed in 2018, has not helped its cause in the corridors of power. Many US politicians from right across the political spectrum and the regulators appointed over the past year by the Biden administration see Meta as a company that needs to be restrained rather than allowing it to take control of a slice of the global monetary economy.
A senior figure in the cryptocurrency sector told "Globes, "Novi is the right project being promoted by the wrong company. The question now being asked is if Facebook will be able to succeed in creating the metaverse, its 3D virtual space, after what it has failed to do in the cryptocurrency sector. As great as the expectations and announcements in the field of currency were, so the disappointment is great."
The digital wallet will be converted to NFT
Novi was already launched last October as a limited pilot in Guatemala and the US, using the coin of an external cryptocurrency provider the Paxos dollar. Now the digital wallet is being redirected to NFTs, a market worth tens of billions of dollars annually, through which Meta expects to control the metaverse economy.
Through the wallet, Meta hopes that users will be able to buy digital assets or NFTs, such as for digital creations, avatars, software, and virtual goods in computer games and make use of them in the virtual space.
But this market is still in its infancy and not yet ready to compete in the advertising market. Meta has many rivals in its efforts to create a world of virtual reality, first and foremost Microsoft, and many other companies offering NFT trading platforms, including Coinbase, OpenSea and Twitter.
Meta said, "The Israel R&D center plays a significant role in the company's innovation. Our teams in Israel continue to engage in their important endeavors and are developing the fundamental technologies that will form the base of the metaverse."
Published by Globes, Israel business news - en.globes.co.il - on February 8, 2022.
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