Libra is a permissioned payments network utilizing some aspects of blockchain technology, including BFT consensus amongst authority nodes. Libra offers a quasi-stablecoin pegged to a basket of fiat currencies and is run by a consortium of technology and finance companies and nonprofits, including Facebook, Uber, Visa, and Kiva.
Facebook developed the Libra software, which is fully open-source and includes a variety of SDKs for external developers. The codebase is written in Rust and introduces the novel programming language Move, which supports full smart contract functionality and a virtual machine. While this design suggests that metatokens and other uses of smart contracts will be supported, as is common in like networks such as Ethereum, early versions of the network will only support smart contracts approved by the Libra association; Libra is open-source, but not permissionless. Transactions are managed in an account model, similar to Ethereum and in contrast to Bitcoin’s UTXO model. Accounts are not directly linked to a real-world identity if accessed through a third-party service, though Facebook’s Calibra custodial wallet will link addresses to social media accounts. Per the whitepaper, Libra transactions are pseudonymous, not shielded, and can be viewed with a block explorer; this may permit de-anonymization of transaction flows, as Chainalysis does with the Bitcoin and Ethereum blockchains.
The Libra network uses LibraBFT consensus, based on the HotStuff protocol, versions of which are used in Celo and Thunder Protocol. This model requires ⅓ of validators to be honest for the network security; Libra Association members act as validators in this permissioned network. The whitepaper leaves open the possibility that the network could transition to Proof of Stake in the future. Libra is not a blockchain, in the traditional sense. Instead, it is a single Merkle tree that records checkpoints of the network state, updated as transactions are confirmed. These checkpoints are taken to be canonical after being verified through the LibraBFT consensus because each of the validators are known/trusted. Libra tokens are used to pay for smart contract execution, using a similar pricing model to Ethereum gas. The Libra network aims to launch with roughly 100 validators, 10 second confirmation times, and 1000 transactions per second.
There are two tokens associated with the Libra Network. The Libra token is designed for use as a payment mechanism and is fully backed by the Libra Reserve with a basket of major fiat currencies and short-term, low-risk securities. Since Libra are backed by a basket of fiat which have floating exchange rates, the value of one Libra can fluctuate relative to any individual fiat currency. Thus, Libra is not a stablecoin per se, and bears closer resemblance to currency boards, such as Hong Kong’s, or the IMF’s Special Drawing Rights. Authorized resellers can purchase Libra through the Association with the reserve basket and all such transactions will be subject to KYC monitoring.
Second, the Libra Investment Token (LIT) is a self-avowed security token that conveys rights to the accrued interest on the Libra Reserve, which may function similarly to a money market fund. This interest could be significant were the Libra to gain a large market capitalization, and would not accrue to Libra token holders. LIT were allocated to the founding members of the Libra consortia, each of whom invested at least $10 million to provide initial capital for the Reserve. Broadly, the Libra Investment Token can be understood as a form of preferred bank equity or an example of ‘securities plus’, as described further in S+C’s overview of security tokens.
In addition to developing the core software and being a member of the Libra Association, Facebook also operates Calibra, a subsidiary that will manage a custodial Libra wallet and develop auxiliary payment services. Calibra aims to be integrated into products such as Facebook Messenger, WhatsApp, and/or Instagram. Facebook claims that Calibra will not share customer financial data with other Facebook divisions, except in cases of fraudulent activity. Libra tokens held on Calibra will have full password and private key recovery features. Calibra is not the exclusive wallet for Libra — it is anticipated that third-party, non-custodial wallets will also be developed, though it is unclear if Calibra would receive any favorable treatment within the network. Once integrated within Facebook’s product suite, the Calibra ecosystem may resemble WeChat Pay, which has more than a billion MAUs and $15 trillion in yearly transaction volume.
The Libra Association is the Swiss foundation that will manage the network, and includes as members Facebook, Uber, Visa, and Kiva. Libra aims to launch with 100 Association members, who span technology, finance, academia, and NGO. Members must meet two of the following criteria: more than $1 billion market value or $500 million in customer balances, reach more than 20 million people per year multinationally, or be recognized as an established industry leader by a third party organization such as Fortune or S&P. Notably, none of the founding members are traditional banks. Each member is required to run their own node on the Libra network, with operating costs covered through interest accrued on the Reserve. The Association will perform a broad set of governance functions, such as changing fiat constituents of the Libra Reserve or censoring transactions with a supermajority vote. While individual members can earn any amount of interest rewards based on their Libra Investment Token holdings, their voting weight in Association governance decisions is capped at 1%. This mechanism is designed to limit the amount of formal influence that any one member can have; though Facebook lead development of Libra, its governance weight is fixed at 1%.
Facebook’s involvement with Libra through Calibra is led by David Marcus, the former head of Facebook Messenger, president of PayPal, and member of the Coinbase board of directors.