Decoding Binance's Libra 2.0 Research Report: Three Trading Paths You Should Prepare For

Binance Research released a research report on the updated version of Libra on the evening of the 22nd. Through charts produced by Binance, the overall architecture of how Libra operates can be seen more clearly, including three pathways for using Libra for transactions.

Binance Research released a research report on the revised version of Libra on the evening of the 22nd. Through the charts produced by Binance, it provides a clearer view of the overall architecture of how Libra operates, including three paths for using Libra for transactions.

Chart 1: Libra Network Architecture

As previously reported, Libra Networks, a subsidiary of the Libra Association, will be responsible for operating and minting Libra tokens. Its role is similar to that of a central bank, minting stablecoins for designated dealers through on-chain and off-chain collaboration. Dealers provide corresponding collateral to Libra Networks.

These dealers correspond to downstream institutions that meet regulatory standards (exchanges, virtual asset service providers, over-the-counter traders), which are responsible for exchanging Libra tokens for fiat currencies or other digital assets for approved virtual asset service providers or non-custodial wallets, and general users.

Chart 2: Three Transaction Paths of Libra

There are three paths: the first one is if users A and B are in the same country transferring local currency (e.g., the U.S.), user A can directly transfer Libra USD stablecoin to another user B.

The second path is cross-border transfer, where a user A in the U.S. transfers Libra USD stablecoin to a user B in Brazil. This process involves conversion through a third-party financial institution into Libra Coin (a stablecoin backed by multiple fiat currencies) for transmission, which is then converted back into the corresponding Libra USD stablecoin by financial institutions in B's country. This method technically reduces conversion costs but still incurs low fees, meeting regulatory requirements and basic profit models.

The third path is an impractical method. In cross-border transactions, if the destination does not have a virtual asset service provider compatible with Libra, the transaction cannot be completed.

Binance's Evaluation

Overall, Binance describes that even though most applications of this system will be domestic transfers, there isn't much innovation. However, it has laid the foundation for a high-threshold system, much like what Elon Musk's SpaceX has done for the space industry. Additionally, Binance points out the risk of Libra having some reserves in ultra-short-term bonds, which poses liquidity and interest rate risks, suggesting measures such as third parties assisting in token destruction to enhance asset buffering.

Reportedly, Libra claims in its whitepaper that it will select highly liquid ultra-short-term bonds as asset buffering to protect reserves. The actual effectiveness remains to be tested once it goes live.

Further Reading

• [Observation] After reading Libra 2.0 whitepaper, analyzing the motivations and methods of the four major changes
• Calibra, under Facebook, is hiring for Libra! 53 new positions open in four countries

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