The Libra concept unveiled in June 2019 is a lot different to the current thinking – so much so that developers working on the project believe the primary use case may now be to create infrastructure on which central banks can issue their own digital currencies.
Libra is a digital currency proposed by Facebook to provide its 2.4 billion users with payments and fintech solutions. The original concept proposed a decentralized, permissionless approach – inspired by the examples of Bitcoin and Ethereum – with a loose governance run by a Switzerland-based foundation, Libra Association.
Facebook would also introduce a wallet called Calibra on which it could provide broader financial services using Libra as its digital denomination.
The announcement set off a firestorm among regulators in the U.S. and Europe, who are concerned about Facebook’s involvement in such a scheme. Several high-profile members of the Libra Association such as Visa and Mastercard quit the project. In response, Facebook – or rather, the Libra Association – issued a follow-up paper in April 2020 with a very different proposal.
The new version of Libra is much more modest, so its presentation attracted scorn. In some ways it looks like just a half-baked payments fintech, a PayPal without a cause.
Devoted developers
However, there are developers who are actively working to build solutions for Libra. The project may yet influence the future of money, according to people now working to create solutions based on Libra – people running firms backed by venture-capital money to develop Libra tech even though Libra has yet to go live. They made their remarks at Consensus, an online conference for the crypto space.
The first big change in Libra is its plan to separate the Libra Network – the payment rail – from the creation of its stablecoin. “This is allowing countries to issue CBDCs with Libra’s technology,” said Ran Goldi, co-founder and CEO of First, an Israel-based technology company that has been participating in the Libra developer community. “We may see countries launch their own stablecoins on Libra’s technology stack.”
Another emerging prospect for Libra is to become the foundation for other companies to create new services on top. “We’re having daily conversations with fintech companies providing services in the traditional space who want to explore stablecoins,” said Michael Shaulov, New York-based CEO and co-founder of Fireblocks, a cyber and security company for digital assets.
A third developer is Dapper Labs in Vancouver, a leader in developing decentralized applications (dapps) and now has projects with corporations such as the U.S. National Basketball Association to develop games. “We want to support Libra as an onramp to crypto,” said Dapper CEO Roham Gharegozlou. “Libra can onboard more people to stablecoins than anyone else.”
New direction
The focus of Libra has changed. The new white paper sees Libra primarily as a payments technology, with its blockchain distanced from the governing Libra Association to make it more like a neutral vendor.
Libra’s initial white paper envisaged it as a single currency backed by several fiat units such as the dollar, the euro, sterling and the Singapore dollar. Its latest paper proposes a new structure, with a number of single-currency stablecoins (a Libra tied to the dollar, another to the Swiss franc, etc) that are then wrapped into a smart contract (a tokenized form of a legally binding mechanism) that forms a new currency, Libra or LBR.
This means users in the US or the European Union would just use their own fiat currency to access Calibra or related payments services, but people in other countries would use LBR. LBR might take on security-like aspects, intentional or not, as the stablecoins are meant to be backed by huge investment pools from private sources. The main goal of this structure is to assuage regulators.
A second change is Libra, or Facebook, is shelving design choices around decentralization, again to meet regulators’ demands.
Third, to meet compliance demands around things like KYC and money laundering, the Association is creating a separate blockchain infrastructure called Libra Networks, a mint and payments rail that it hopes will attract issuance from central banks looking to launch their own digital money; while Libra Association elevates to a governance role.
Beneath this is a layer of “designated dealers”, probably banks, who communicate with the mint above them and a variety of “virtual asset service providers” beneath. These VASPS would include regulated ones such as crypto exchanges or big OTC brokers, and “certified” VASPS that include wallets and possibly individual users.
