In the name of compliance, the Libra association is making concessions on the architecture of its decentralized network and the assets that will circulate there.
Will central banks create their virtual currencies? The Libra association hopes so.
She mentioned this on numerous occasions in the White Book relating to its project formalized almost a year ago: the creation of a “global financial services infrastructure”.
Since that announcement, regulators have stepped up to the plate.
The association reports on this in an update – the first – of the white paper. She incorporated four key changes. They concern :
- The currencies that will circulate on the network
- The compliance framework
- The underlying blockchain
- The Libra reserve
The latter must contain an amount at least equal to the face value of each virtual coin (Libra Coin) in circulation.
Details have been provided as to its constitution.
Broadly speaking, it will include at least 80% of very short-term government securities (maximum maturity of 3 months) from issuers rated at least A + at S&P and A1 at Moody’s. The rest will consist of cash and equivalents. A regularization stock will be added to it to deal with possible losses.
Libra will not be alone
The initial objective was to develop a virtual currency (the Libra, ≋LBR) backed by a basket of fiat currencies.
Faced with the concerns of regulators in matters of monetary sovereignty, it was decided to create other virtual currencies. More precisely stablecoins, each backed by a currency, starting with the euro, the pound sterling, as well as the US and Singaporean dollars. All will be covered by the reserve. The volume in circulation will adjust to demand.
Libra will be implemented as a “composite” indexed to these stablecoins, through a basket whose composition may change. A model similar to special drawing rights from the IMF.
A less open network
On the compliance aspect, the revision of the white paper clarifies the categories of participants in the Libra network.
At the top of the pyramid will appear the association (and its subsidiaries), then its members.
Then come the “Designated Dealers”, assimilated to “root” entities. It is through them that the virtual currencies will be distributed.
Next in line are VASPs (Virtual Asset Service Providers), which will provide financial services on the Libra network.
There will be two types. On the one hand, the “regulated”, in the sense that they are registered or licensed in a jurisdiction that is a member of the Financial action group. On the other hand, the certified, who are not in this case, but will have passed a process of due diligence orchestrated by the Libra association.
The “Unhosted Wallets” will remain. That is, all Libra addresses not associated with one of the above categories. Unlike VASPs, they cannot, by default, exceed a deposit and transaction limit.
The blockchain on which this network will operate was originally supposed to be open, without permissions.
Faced with regulators’ concerns about the ability to meet compliance requirements within this framework, the “no permissions” approach has been abandoned.
Applicants for the operation of a validation node will undergo a process of due diligence. On the basis of public criteria (technical capacity, history of economic performance, etc.), scores will result which will make it possible to rank the applications.
Main illustration © Libra
