Facebook’s Libra Outlines New Approach

Libra, the digital currency Facebook set out to launch through the Libra Association last June, is taking a new direction, according to a new blog post released today, “Libra Developers: The Path Forward”. Notably, the new path no longer involves just a single, multi-currency coin backed by a basket of assets, but will begin with a number of single-currency stablecoins linked to various national currencies as well.

In announcing this new path, the Libra Association cited policymakers around the world with having “helped us understand key concerns so that we can integrate actionable improvements into the Libra payment system’s design and into a phased rollout plan”.

The high level overview of the changes include marrying the blockchain technology with accepted regulatory frameworks; offering single-currency stablecoins in addition to the multi-currency coin; as well as phasing the rollout of the Libra network.

Blockchain Development

“The updated white paper outlines categories of network participants, including Virtual Asset Service Providers (VASPs) and Unhosted Wallets,” Libra states. “We believe most people will interact with the Libra payment system through VASPs, such as custodial wallets and exchanges. We also believe it is important to permit the broader developer community access to the Libra network by enabling Unhosted Wallets with protocol-level compliance controls.”

In the first Libra white paper, the developers note the plan was to begin with a permissioned blockchain, and eventually transition the network to a permissionless system. In the months since, however, they say they realised that it would be “challenging” for the Libra Association to guarantee that network compliance provisions would be maintained.

One of the approaches being considered by Libra is offering new entrants the ability to compete for the provision of core network services and participate in the governance of the Libra network, while ensuring the association’s ability to meet regulatory expectations.

Single-Currency Stablecoins

The association makes a point to say that the Libra network is designed to be a globally accessible and low-cost payment system – a complement to, not a replacement for, domestic currencies.

“The stabilisation of currencies and value preservation are key efforts that are properly within the exclusive remit of the public sector,” notes Libra. “Therefore, we are augmenting the Libra network by including single-currency stablecoins (eg, USD, EUR, GBP, etc). We hope to work with regulators, central banks, and financial institutions around the world to expand the number of single-currency stablecoins available on the Libra network over time and to explore the technical, operational, and legal requirements to access direct custody with them.”

Phased Rollout

Since the June 2019 announcement, the developers say they have had discussions with policymakers around the world to determine an appropriate phased rollout plan.

“Initially, the network will only be accessible to Designated Dealers and Regulated VASPs, while the association continues to develop its certification process for other VASPs and its compliance framework for Unhosted Wallets based on the feedback received from regulators. The association intends to make the network accessible to Certified VASPs and Unhosted Wallets once the relevant compliance frameworks have been finalised,” Libra states.

“Through our experience using Move to build the support for the features described in the white paper, we were able to see first-hand the potential of a programmable financial infrastructure. For example, Move generics allowed us to create a straightforward API for single-currency stablecoins. The association is committed to implementing appropriate review and risk controls for smart contracts. At first, only association-approved and -published smart contracts will be able to interact directly with the Libra payment system. Over time, the association will explore appropriate controls to allow third-party publishing of smart contracts,” the association says.

Julie Ros

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