Published: April 21th, 2020
The Libra Cryptocurrency Project by Facebook has undergone substantial changes. Key areas of the project have been modified to bring the project into compliance with the regulatory demands. Among the modified areas include security of the payment system and plans for both single-currency stablecoins and the multi-currency Libra coin (LBR).
The Libra Association, the independent group put together by Facebook to oversee the giant social media company’s Libra Cryptocurrency Project on Thursday, April 16 released a revamped edition of the stablecoin’s proposal.
A developer with Libra Association Michael Engle, in a blog post written on Thursday, sought to explain some of the major changes. Michael affirms that since the project began, the Libra Association has strived to work with the regulators, elected officials, central bankers, and all the various stakeholders with the aim of shaping the association’s innovative project. The Libra Association wants to use the blockchain technology to facilitate a regulated and licensed payment system.
Michael added that his association has made changes to the initial approach, most of which depart substantially from the stances that other blockchain projects have taken.
The new whitepaper highlights the four major changes that the Libra Association has incorporated to meet the set regulatory demands. The four areas address the need for a single-currency stablecoin as well as the multi-currency-coin. Also, the Libra association is looking to secure the Libra’s payment system by giving it a robust payment system.
The other important areas will see Libra forgo its earlier proposed transition that would have turned it into a permissionless system with the intended economic properties. Lastly, the association wants to incorporate stronger protections into the architecture of the Libra Reserve.
Regulators have previously expressed concerns that the Libra cryptocurrency is capable of interfering with the national currencies of most countries and their monetary policies. This is especially so if the coin is scaled enough to be adopted by the parent company’s more than 2.5 billion users.
To help address this concern, Engel said that the Libra Association will augment the coin’s network by incorporating single-currency stablecoins such as USD, GBP, EUR, and other such stablecoins.
The Libra network will not use existing stablecoins such as USDT. Instead, its single-currency stablecoins will be self-issued. Besides, the Libra Coin (LBR) will work independently of these coins.
This proposed change probably is the most interesting of all four. And, it had been predicted especially following concerns that the G20 panelists raised in a meeting in June 2019. The meeting was perturbed by the prospect of a new currency with a fluid, effective, and efficient distribution channel such as the Facebook platform.
The whitepaper proposes changes in the architecture of the Libra coin. To this effect, LBR will not operate as a separate digital asset, rather, it will be a digital component of the stablecoins embedded on the Libra network.
The coin will be a factor of the fixed nominal weights such as the International Monetary Fund’s Special Drawing Rights (SDR). This approach, the Libra Association claims, will provide a clearer path for seamless integration of central bank digital currencies (CBDCs) into the Libra network.
This change is the most significant. In what is seen as a migration from the original plan, the Libra Network will remain a permissioned system. Lawrence Wintermeyer, a Forbes Magazine Fintech contributor thinks that this change has been occasioned by the need to respond to the concerns raised by regulatory bodies and central bankers.
Central bankers have always maintained that permissionless networks and their architecture are not fit to serve as international financial systems. The permissioned system that the Libra Association envisions will have open competitive principles. Such a system gives the Proof of Stake (PoS) and such other novel blockchain consensus proposals an opportunity to demonstrate how they can aptly serve the governance and oversight needs of massive financial networks and large companies.
According to the revised whitepaper, the Libra Association plans to improve the safety of the platform’s payment system. The whitepaper details how it will incorporate a robust framework for network-wide risk management as well as financial compliance. Libra will also adhere to the prescribed standards of anti-money laundering as well as terrorist financing.
These measures are seen as an effort to improve rapport with regulatory agencies. The Financial Stability Board (FSB), the body that is tasked with evaluating the consequences of stablecoins only recently released a report that highlights how Libra and similar global stablecoins can exist with the help of regulatory frameworks.
The move by the Libra Association, as such, seems like a charm offensive meant to bring the association closer to bodies such as FSB. Hopefully, the Libra Association will agree with the regulators on how the stablecoin can operate within a multi-jurisdictional regulation environment.
With the revisions in place, the association has hit the ground running.
It has already filed for licensing with a leading European financial regulator, Swiss Financial Market Supervisory Authority (FINMA). Reports indicate that the association is also pursuing a nod from the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury.
The Libra Project which had attracted a bevy of supporters saw many of these partners develop cold feet because of the regulatory concerns. Among the initial lineup of the project’s supporters are Visa, MasterCard, Vodafone, Shopify, and PayPal. Some of these that jumped ship now support Libra’s competitor, Celo.
The Libra Association has highlighted the changes it plans to incorporate in the Libra Cryptocurrency Project to meet regulatory requirements. The mammoth project by Facebook wants to champion for mass adoption of cryptocurrencies by availing an innovative coin with far more applications than Bitcoin and the other altcoins. The project is, however, not without controversy. Though Facebook has an admirable following, which would be great for the coin’s distribution. The company’s lax handling of personal data, however, has come under scrutiny. Besides, regulators think that a coin with such an elaborate distribution network should not be an international financial system.