【Analysis】After reading the Libra 2.0 whitepaper, analyzing the motivations and methods behind the four major changes.

On the evening of the 16th, it was reported that Libra released its latest whitepaper and that the Libra Association is undergoing scrutiny by the Swiss Financial Market Supervisory Authority (FINMA) for a financial payment system license. After reviewing the whitepaper, four major updates of Libra 2.0 were summarized, along with explanations of its motives, purposes, and implementation.

Explaining the Emergence of White Paper 2.0: Cover Letter from the Libra Association

The first part of the white paper is titled "Cover Letter from Members of the Libra Association," briefly outlining the motivation behind the introduction of White Paper 2.0. The use of relatively humble language to introduce itself globally indicates how much pressure it has been under in the past year. Its changes are indeed responding to concerns from governments, central banks, and regulatory bodies around the world.

We have summarized the content of the Cover Letter, listing its motivations, objectives, and changes—

Motivation: Establishing a more inclusive and innovative financial system

Objective: To seamlessly integrate the Libra payment system with local currencies and macroprudential policies, and to strengthen existing currencies by enabling new features, significantly reducing costs, and promoting financial inclusion.

Changes:
1. Adding several stablecoins anchored to a single currency, previously only stablecoins anchored to multiple assets (≋LBR, or Libra Coin)
2. Adding a regulatory framework to the Libra payment system
3. Abandoning the plan to transition to a permissionless system, but still maintaining its financial characteristics
4. Providing strong protection for the Libra reserve

[Change One] Stablecoins Anchored to a Single Currency: Four Fiat Currencies

Motivation: To address the potential interference with monetary sovereignty and monetary policy posed by stablecoins anchored to multiple assets like ≋LBR. The white paper states that the purpose of this plan is only to supplement the shortcomings of fiat currencies.

Approach: The targeted single-currency stablecoins in the plan are the US Dollar, Euro, British Pound, and Singapore Dollar, referred to as LibraUSD (≋USD), LibraEUR (≋EUR), LibraGBP (≋GBP), LibraSGD (≋SGD), with the possibility of adding more in the future. The reserves for each currency include cash, cash equivalents, and short-term government securities denominated in that currency. ≋LBR will only serve as an efficient cross-border settlement currency on the Libra network, with local fiat currency exchanges handled by network participants such as dealers.

Details: The design of single-currency stablecoins aims to simplify ≋LBR, allowing it to maintain the weight ratio of single-currency stablecoins through smart contracts. In other words, issuing various single stablecoins backed by fiat currencies as reserves, then anchoring them to ≋LBR based on fixed weight ratios. Libra believes that the adoption of single-currency stablecoins may impose a burden on operators in maintaining liquidity.

[Change Two] Compliant System Framework: Establishing Operational Standards, Initially Opening Custodial Wallets Only

Motivation: Addressing the financial regulatory requirements such as anti-money laundering, counter-terrorism, and sanctions compliance from global regulatory bodies.

Approach: Establishing a Financial Intelligence Unit (FIU) to support and maintain operational standards for participants in the Libra network. There are four categories of network participants:

(1) Designated dealers
(2) Virtual Asset Service Providers (VASPs) approved by FATF (e.g., exchanges, custodians)
(3) VASPs approved by the Libra Association
(4) Other individuals or entities (non-custodial wallets)

Although participants in the fourth category can achieve the goal of financial inclusion, they will face restrictions on transfer amounts and balances due to higher risks. They will gradually be allowed once they pass international regulatory approval. Additionally, the Libra network itself will not provide, record, or settle exchanges between Libra coins and fiat currencies or other digital assets; this will be handled by third-party financial service providers.

Details: Regarding sanctions compliance, compliance agreements can prevent transactions from specific wallet addresses and IP addresses. In addition, there will be off-chain agreements to help network participants comply with international transfer rules like the Travel Rule.

[Change Three] Abandoning the Plan for a Permissionless System: No Permissionless

Motivation: Preventing unknown participants from controlling the system and removing key compliance terms.

Approach: Abandoning the plan for a permissionless system and transitioning into a system that provides transparency, openness, and competitiveness in network services and governance. Libra believes that this design can replicate the key economic attributes of a permissionless system while also serving the due diligence function of a permissioned system. This change is also in response to regulatory concerns.

Details: Major policy decisions require approval from two-thirds of the Libra Association's council representatives and are supervised by the Swiss Financial Market Supervisory Authority (FINMA). Network operations, token minting and burning, and reserve management are the responsibilities of Libra Networks, a subsidiary of the Libra Association. However, it remains open for the developer community to develop more applications and improvements for its network.

[Change Four] Strengthening Protection for the Libra Reserve

Motivation: Adapting to extreme situations and protecting Libra holders

Approach: The reserve will include ultra-short-term, mature, low credit risk, and highly liquid assets, providing asset buffering functionality.

Details: The reserve consists of 100% cash, cash equivalents, and ultra-short-term government securities. Unlike banks, which only hold a portion of cash reserves and liquid assets to repay deposit liabilities.

Summary

The launch of Libra 2.0 clearly reflects the challenges that mainstream payment methods like Bitcoin and USDT will face, most of which stem from regulatory considerations rather than technical or economic models. The initial design of Libra was not highly decentralized nor based on blockchain technology, but it still aimed towards a permissionless system, which aligns with cryptocurrencies.

The revisions in Libra 2.0 are made to meet real regulatory demands: abandoning the permissionless system, centralized governance, regulatory oversight, and restricting the use of non-custodial wallets, all of which diverge from the majority of cryptocurrency visions. However, in terms of application purposes, it has achieved the functions of most payment-oriented cryptocurrencies: fast, cross-border, low-cost, and transparent. In fact, decentralization has not been a significant issue for operators and users.

Interestingly, cryptocurrency exchanges have the opportunity to act as operators for the Libra network. For the Libra network, it does not record transactions between Libra coins and other fiat or digital assets, leaving it to service providers like dealers to handle exchanges. Once credible and guaranteed Libra stablecoins enter the cryptocurrency market, it may pose the greatest threat to existing stablecoin companies like Tether.

Finally, Libra 2.0 also mentions its anticipation for integration with central bank digital currencies. Whether it will allow the inclusion of China's digital currency (DCEP) or prompt countries including the United States to accelerate the digitization of fiat currencies is a development worth watching.