Interpretation of Libra White Paper 2.0: Four major updates

In June 2019, the Libra Association released the first white paper. On April 16, 2020, the Libra Association released a new white paper. The Libra Association stated that their goal is by no means to imitate other systems, but to create an open and reliable system through the use of association members and distributed technologies, as well as the use of distributed governance innovation methods.

World-Interpretation of Libra White Paper 2.0: Four Major Updates

In the latest white paper, four major changes have been made to the design of the Libra payment system to address regulatory issues that have previously drawn special attention, including:

1. In addition to multi-currency tokens, Libra will also provide single-currency stablecoins;

2. Improve the security of the Libra payment system through a strong compliance framework;

3. While maintaining the main economic characteristics, abandon the transition plan to the unlicensed public chain system.

4. Establish strong protection measures for Libra’s asset reserves.

Below, let Golden Finance (WeChat: jinsecaijingwang) and everyone explain the four major changes in the new version of the Libra white paper:

1. In addition to multi-currency tokens, Libra will also provide single-currency stablecoins

Although the Libra Association has always hoped that the Libra network can supplement the fiat currency system rather than compete with it, many national regulators seem to be concerned about a major issue, that is, when the scale of the multi-currency Libra (≋LBR) network becomes more and more The bigger it is, and when a large number of domestic payment transactions are conducted using Libra, it may interfere with the sovereignty of fiat currencies and fiat currency policies.

Therefore, the Libra Association decided to add a single currency stable currency to expand the Libra network. It will first start from some fiat currencies in the original Libra basket of anchor currencies, such as a single dollar anchored Libra: LibraUSD (≋USD), a single euro anchor Fixed Libra: LibraEUR (≋EUR), single pound anchored Libra: LibraGBP (≋GBP), single Singapore dollar anchored Libra: LibraSGD (≋SGD) For individuals and businesses in regions where there is a single currency stablecoin on the Libra network, they can directly use their national currency to access the corresponding Libra stablecoin anchored in that currency. Every single currency stable currency will be fully supported by the reserve fund, which includes cash or cash equivalents, as well as very short-term government securities denominated in the legal currency.

Over time, the Libra Association hopes to cooperate with regulators, central banks, and financial institutions around the world to further expand the number of single-currency stablecoins available on the Libra network. Libra (≋LBR) will not become a digital asset divested from single-currency stablecoins, but will become a “digital composite” of some single-currency stablecoins available on the Libra network. Libra will be defined with a fixed nominal weight, similar to the Special Drawing Rights (SDR) maintained by the International Monetary Fund (IMF).

For countries / regions that do not yet have a single currency stable currency on the Libra network, Libra (≋LBR) can be used as an effective cross-border settlement currency, and is also a neutral, low-volatility currency option. The additional benefit of this approach is that it allows the Libra network to support a wider range of local use cases, and it also provides a clear path to seamlessly integrate central bank digital currency (CBDC) when needed.

2. Improve the security of the Libra payment system through a strong compliance framework

Libra’s goal is to develop a system that ensures compliance with applicable laws and regulations, while also supporting Libra’s openness and financial inclusion. Libra will provide comprehensive safeguards so that individuals and businesses can trust the security and integrity of the Libra payment system. The Libra Association has absorbed feedback from regulatory agencies and will continue to develop a framework to meet financial compliance and network-wide risk management, and develop anti-money laundering (AML), anti-terrorist financing (CFT), sanctions compliance and Standards for preventing illegal activities.

This includes the establishment of “FIU-function: Financial Intelligence Function” to help support and maintain the operational standards of network participants. The Libra network divides participants into four categories:

(I) Designated dealer; 

(Ii) Virtual asset service providers (VASPs, including exchanges and custodial wallets) registered or licensed in the member jurisdictions of the Financial Action Task Force (FATF) or in member jurisdictions of the Financial Action Task Force A virtual asset service provider who registers or obtains a license and performs virtual asset service provider activities (a regulated virtual asset service provider) in accordance with such a license or registration; 

(Iii) A virtual asset service provider (certified virtual asset service provider) that has completed the certification process approved by the Libra Association; 

(Iv) Other individuals and entities seeking to conduct transactions or provide services through the Libra network (no escrow wallet).

No-custodial wallets can achieve financial inclusion, extensive competition, and responsible innovation, thereby facilitating the creation of services for people without bank accounts and those with bank accounts. However, because the activities of such users may bring greater risks, they will have some restrictions on balances and transaction limits. Initially, only designated dealers and regulated virtual asset service providers can access the Libra network, and the Libra Association continues to develop certification processes for other virtual asset service providers based on feedback received from regulatory agencies. The escrow wallet builds a compliance framework. The Libra Association intends to allow certified virtual asset service providers and unmanaged wallets to successfully access the Libra network after the relevant compliance framework is finalized.

3. While maintaining the main economic characteristics, abandon the transition plan to the unlicensed public chain system

The regulatory body raised many thoughtful questions about the scope of control of the Libra network, especially the potential risk of preventing unknown participants from controlling the Libra system and removing key compliance regulations. We believe that the key economic attributes of unlicensed systems can be replicated through open, transparent, and highly competitive network services and governance platforms, while taking into account the due diligence responsibilities of association members and verifiers on licensing systems.

4. Establish strong protection measures for Libra’s asset reserves

The Libra Association has had a constructive discussion with regulators on how to deal with extreme situations, in particular how reserves will play a role under greater pressure, and what claims and protections can be provided to Libra token holders. Libra has incorporated strategies based on other systems methods into the reserve design and structure. The reserve fund will hold assets with short-term maturity, low credit risk and high liquidity, and will also maintain a capital buffer.

to sum up

This updated Libra white paper focuses on the tasks and mechanisms that support the Libra payment system, and strives to provide detailed information on updates in some key areas. In addition, Libra hopes that the new version of the white paper will open the door for a wider public-private partnership and achieve the common goal of improving global payment efficiency and expanding financial inclusion.

Source: Golden Finance

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