Understanding Libra 2.0: A compliant global platform for the digital programmable EUR, USD, GBP & Co.

Philipp Sandner
12 min readApr 17, 2020


Yesterday, the Libra Association — a consortium including 22 companies like Facebook/Calibra, Spotify and Uber — has announced its version 2.0 of the Libra project: Libra was initiated by Facebook and revealed in summer 2019 (v1.0). After tremendous criticism by regulators after the announcement of v1.0, the Libra Association clearly takes a step towards regulators with the recent announcement, changes its concept (v2.0), and complies with many demands from regulators and central banks. It is therefore reasonable to argue that, eventually, the Libra platform might be launched later this year. Admittedly, Libra has lost some important consortium members such as Mastercard, Visa, PayPal and Vodafone. In this article, we answer the following question: What are the key aspects of the new concept “Libra 2.0” and what are its implications? — Authors: Philipp Sandner, Jonas Gross

See German version here.

What could be potential implications of the new “Libra 2.0” concept?

In 2020, the digital programmable Euro (≋EUR) might be available running on the Libra platform together with the digital USD (≋USD), the digital GBP (≋GBP) etc. The blockchain-based digital Euro in programmable form will provide various benefits for the industry and end customers, but this is so far not widely understood (see below).

Of course, it can be disputed to what degree Libra in its current design is a true distributed ledger technology (DLT)-based platform. We defer this question to future research.

What projects are competing with the new “Libra 2.0” concept?

In our opinion, Libra will become a generic platform for “digital programmable currencies” with smart contract functionalities. Other projects are also working on this. We can assume that the following projects will become competitors of Libra:

  • Chinese digital currency (DCEP): The Chinese central bank started to conduct the first test runs of their digital currency in April 2020. The goal is to replace physical cash with a digital version of the local currency.
  • Celo, EOS, Stellar, Ripple (XRP): These projects seek to be platforms for tokenized assets, including tokenized currencies. They are — like Libra — also rather centralized and partly permissioned systems.
  • JPM Coin: JP Morgan announced its JPM Coin a long time ago but not much development has happened since then.
  • Ethereum: This project could also be identified as a competitor, but Ethereum already has a huge community, it is open source and rather decentralized. With these characteristics, it is not the closest competitor in comparison to the other projects.

What are the key aspects of the new “Libra 2.0” concept?

The following key aspects are the major changes of v2.0 compared to v1.0: announcement of single-currency stablecoins, introduction of a capital buffer for crisis situations, commitment to a permissioned blockchain system (Libra platform), and the implementation of a profound compliance strategy in cooperation with regulators. The main changes can be found in Figure 1.

Figure 1: Overview of key aspects of the new “Libra 2.0” concept

Multiple single currencies such as EUR, USD, GBP

Libra v1.0 was designed as a platform and planned to be a global means of payment backed by a basket of existing fiat currencies, like EUR and USD, and government bonds. Now, in version 2.0, Libra is more becoming a global value platform where multiple single currencies can be “plugged” onto. In their updated white paper, they explicitly mention USD, EUR and GBP — the number of single-currency stablecoins is planned to be increased over time in cooperation with regulators, central banks and financial institutions. The rough architecture of the “Libra 2.0” concept is shown in Figure 2.

Libra Coin backed by multiple currencies

Additionally, for regions where there is no stable currency the Libra Coin could fill this void and act as a “replacement” to increase financial inclusion. Besides various single-currency stablecoins, there will be one multi-currency Libra Coin (≋LBR), which consists of the single-currency stablecoins and is therefore a composite of the single-currency stablecoins. The exact composition and the share of the respective single-currency stablecoins will be defined in terms of fixed nominal weights, e.g., applied in the Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF). The paper mentions an exemplary composition of ≋USD 0.50, ≋EUR 0.18, ≋GBP 0.11, etc. for the multi-currency Libra Coin. The Libra Association clearly states that also central bank digital currencies (CBDC) can easily be integrated onto the Libra platform in the future.

Figure 2: Architecture of the “Libra 2.0” concept

Smart contract functionality

Smart contracts will be possible on the Libra Blockchain — similar to smart contracts on the Ethereum Blockchain today. In the beginning, they will be audited by the Libra Association, later on more freedom can be expected. In theory, also loans, escrow accounts in USD, EUR, GBP, etc. are technologically feasible. However, the Libra Association stresses that the Association will not provide loans itself but rather — if ever — through third parties. Therefore, it could also be possible that banks could collaborate and could offer loans denominated in Libra via the Libra platform.

Commitment to a permissioned blockchain system

Initially in v1.0, Libra imagined to start as a permissioned network for the Libra consortium members and become a “public” network such as the Ethereum blockchain after five years. Now with v2.0, Libra clearly states that it seeks to stay permissioned. Probably to keep control over the network and the governance and for regulatory reasons. Processes are outlined how nodes and service providers can join the network.

Composition of the Libra Reserve and capital buffer

Both the single-currency stablecoins and the multi-currency Libra token will be fully backed by respective reserve assets to preserve the stability of the payment system. Single-currency stablecoins will be backed by at least 80% short-term (up to three months’ remaining maturity), highly-rated government bonds denominated (at least A+ rating from S&P) in that currency, and to 20% by cash or cash equivalents. Libra tokens can only be created and minted by the Libra Association in response to market demand. The Libra Association admits that losses could occur in the Libra Network, e.g., arising from rapid changes in interest rates. For this situation, the Libra Reserve is endowed with an additional capital buffer, which can be used in times of crisis. However, it is not stated in the document how large the buffer will be.

Compliance and cooperation with regulators

In v2.0, the Libra Association stresses the importance of being compliant with regulatory frameworks — Libra should not be designed to interfere with monetary sovereignty and monetary policy but more to “integrate smoothly with local monetary and macroprudential policies and complement existing currencies by enabling new functionality, drastically reducing costs and fostering financial inclusion”. Therefore, the Libra Association will incorporate a robust compliance framework in order to prevent illicit activities like money laundering and terrorist financing. According to the whitepaper v2.0, it would even be welcome that the Libra Reserve would be oversight and controlled by a group of regulators, central banks or international organizations (e.g., IMF) under the guidance of the Swiss Financial Market Supervisory Authority (FINMA). Besides, it was announced that the Libra Association is in the process of applying for a license as an operator of a payment system from the FINMA.

What kind of “digital programmable money” is Libra?

Libra could become a worldwide platform that can bring a broad array of existing currencies on a blockchain system and would therefore make multiple currencies “programmable”. Programmable money can be issued by various institutions (see Figure 3, Source: Sandner, Klein, Gross, 2020). The first possibility is that a central bank, such as the European Central Bank (ECB), could issue such a programmable currency (central bank digital currency, CBDC). Alternatively, programmable money could be issued by regulated private organizations, such as banks or e-money providers, or by unregulated private organizations, e.g., the case of stablecoins like Tether.

Figure 3: Classification of programmable money

Libra can be classified as programmable money issued by a regulated entity, as the Libra Association clearly commits to follow regulatory guidelines and to work hand in hand with the regulator. This holds for countries that provide stable currencies such as the EUR, USD, GBP etc. and is indicated by the yellow box on the left hand side of Figure 3.

However, Libra could also be seen as issued by an unregulated party, if the Libra Coin is used in developing and emerging economies, where the Libra Association is not regulated. Regulation happens on the country level. It might be that in countries where stable money is truly needed due to local inflation (e.g. Venezuela, Zimbabwe), Libra offers its Libra Coin backed by the basket of currencies. It is questionable whether Libra will follow such an approach or whether the Libra Association first files for local capital market licenses in these countries. If Libra is simply offering the Libra Coin to countries that do not provide a stable currency themselves and if Libra is not filing required licenses then, in these countries, Libra would be an unregulated entity issuing money backed by a basket of currencies. Therefore the second yellow box on the right hand side of Figure 3 also applies to Libra. Libra can therefore not clearly be classified which once again supports the argument that Libra is not just digital money, but a platform with multiple tokenized currencies.

To conclude, the Libra Association might comply with regulatory requirements in countries such as Switzerland, the USA, other European countries etc. but maybe not in every developing and emerging economy.

What are in general the benefits of a “digital programmable currency”?

There are numerous reasons for introducing digital programmable money on a blockchain basis. The main advantages are shown in Figure 4.

Figure 4: Reasons for digital programmable money

Cross-border payments and trade finance

Within the SEPA area, money transfers can mainly be executed within one day, and sometimes even within seconds. Cross-border payments (SWIFT system), however, often take several days (e.g., payments within Europe) or even a few weeks (payments to other continents). In a globalized world, fast money transfers and low transaction fees — especially in cross-border payments — are an important prerequisite for ensuring the international competitiveness of European companies. This competitiveness is particularly important for Germany as a nation with a strong export sector. Besides, this applies not only to export businesses but also to all other money transfers between foreigners and nationals (e.g., cross-border transactions between individuals). The Libra Association explicitly states as one main goal of the project to decrease transaction fees for cross-border payments.

Automation and smart contracts

Companies seek to optimize all kinds of business processes. Nowadays, as soon as a business process triggers a payment or complex processes need to be synchronized, “system breaks” typically occur. One example is any contract with a payment obligation, where the account number often has to be inserted manually — even in 2020. In international supply networks, components are often produced in China and shipped to Germany within one day (delivery). The Euro payment in return often takes up to several days or even a few weeks (payment).

A programmable Euro enables automating all these processes with system breaks. This applies not only to “pure” Euro payments but also to more complex financial processes: Factoring, leasing, sales financing, loans, as well as interest payments can be handled automatically by “programming” the payment flows through smart contracts.

Integration of delivery versus payment (DvP) and digital representation of assets/rights (tokenization)

In Germany, the Euro is almost always the medium of exchange for a service, a good or an acquired asset. Inefficiencies and risks arise as soon as delivery and payment are not provided at the same time. This can be illustrated by the following example: When securities are bought, these securities have to be transferred as part of the business process. At the same time, a Euro amount must be transferred for payment purposes. This clearly shows that the ownership of securities must be matched with the ownership of Euros “across domains”. For securities, these processes take several days until the legally binding and risk-free finality is achieved. In the case of the transfer of GmbH shares or real estate, the transaction is often completed after several weeks in the sense of a fixed finality.

Another argument in favor of using programmable money is that delivery and payment, e.g. for a good or service, can be organized on integrated platforms. With today’s technologies, the time required for securities settlement, including the payment, can only be reduced to a minimum of two days. However, only blockchain technology allows the advantage of real-time settlement, e.g., of securities.

Micropayments and “streaming money”

Value units that are represented on a blockchain are, by definition, infinitely divisible. This so-called fractionalization affects all types of blockchain-based assets, i.e., money, as the Euro, securities, and property rights. Of course, even if this possibility exists technically, legal regulations may prevent its application (e.g., divisibility of a single security into smaller parts may not be legally permitted).

Today, one Euro can only be divided into cents. Blockchain technology would enable transfering even smaller amounts of money efficiently. Such small amounts will be necessary in the future, for example, if an electric car consumes a fraction of a kWh after a few minutes of charging. Even if sensors could, in the future, sell their sensor data directly as autonomous agents, amounts in the sub-cent range need to be transferred efficiently for single data points. Due to the practically infinite divisibility of a blockchain-based programmable Euro, the choice of blockchain technology seems reasonable. These advantages also apply to the concept of “streaming money”, in which sums of money are not transferred on a discretionary basis but in a steady flow.

IT security

Blockchain technology can also increase the security of payment systems by storing transaction data simultaneously on a large number of computers. This would make the system more resistant to hacker attacks, as there would no longer be a single point of failure. In addition, blockchain technology ensures that transaction data cannot be manipulated or changed afterward.


The update “Libra 2.0” clearly indicates further progress of the Libra project. It becomes clear that the Libra Association has engaged in various discussions with central bankers, regulators and other relevant stakeholders and has — based on their feedback — adjusted its strategy. The application for a payment system license at the Swiss FINMA stresses that the Libra Association will work hand in hand with (global) regulators and will not operate in “gray areas”. Despite the progress of the project, it should also be stressed that Libra is still at a conceptual stage. There are various regulatory hurdles to overcome for Libra to go live. Even if the FINMA grants the licence soon, the Libra Association has to apply for a license also in Germany at the BaFin. The update shows that the Libra Association is very serious about introducing Libra soon — however, it might still take some time until all regulatory topics are addressed.


Read more in the whitepaper “Libra 2.0”: https://libra.org/en-US/white-paper/

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Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). From 2018 to 2021, he was ranked among the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. He has been a member of the FinTech Council and the Digital Finance Forum of the Federal Ministry of Finance in Germany. He is also on the Board of Directors of FiveT Fintech Fund and Blockchain Founders Group — companies active in the field of blockchain startups. The expertise of Prof. Sandner includes crypto assets such as Bitcoin and Ethereum, decentralized finance (DeFi), the digital euro, tokenization of assets, and digital identity. You can contact him via mail (m@philippsandner.de) via LinkedIn or follow him on Twitter (@philippsandner).

Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His fields of interest are primarily cryptocurrencies. Besides, in the context of his Ph.D., he analyzes the impact of blockchain technology on monetary policy of worldwide central banks. He mainly studies innovations as central bank digital currencies (CBDC) and other crypto currency projects as “Libra”. You can contact him via mail (jonas.gross@fs-blockchain.de), LinkedIn (https://www.linkedin.com/in/jonasgross94/), Xing (https://www.xing.com/profile/Jonas_Gross4) or follow him on Twitter (@Jonas__Gross).



Philipp Sandner

Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center