After months of criticism, the Libra cryptocurrency project is pivoting. To appease skeptical regulators, Libra is shifting gears from a new global financial system to a more traditional payment network very similar to PayPal and with digital coins backed by individual fiat currencies. When the Libra Association announced the cryptocurrency last June, it intended to create a single global digital currency that would be pegged by a basket of fiat currencies from different countries. Politicians, regulators and central bankers everywhere were rattled and feared that Libra would undermine their power, control and threaten monetary sovereignty.

Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and a weekly columnist at DailyFintech.com.

Facebook shook the world last year when it announced Libra. The idea was simple, to let billions of people send and receive money, using a single global digital currency, on their mobile phones with Facebook.

Around the globe, regulators raised red flags, with severe consequences on the original membership of the Libra Association. From the cryptocurrency’s announcement until January this year, almost 40% of the original members dropped out, including Visa, Mastercard, Stripe, PayPal, Mercado Pago, Ebay, Booking Holdings and Vodafone.

After the G7 nations and the US Congress agreed to block the launch of the Libra and the US Senate hearings in October, Mark Zuckerberg said that he would not go forward with Libra, without regulatory approval.

Seven days ago, the G20’s Financial Stability Board (FSB) released ten recommendations on how to approach stablecoins, and few days after the G20 recommendations, Libra updated its white paper to make it more “regulatory-friendly”.

The new version attempts to address past problems, taking into account the regulatory challenges: single-currency stablecoins, regulated nodes (VASPS), forgoing the future transition to a permissionless system and improving Libra Reserve

Offering single-currency stablecoins, in addition to the multi-currency coin
Instead of a single cryptocurrency Libra will release several stablecoins, backed by fiat currencies, USD, Euro, GBP and SGD. Each single-currency stablecoin will be fully backed by the Libra Reserve.

Enhancing the safety with a robust compliance framework
While “unhosted wallets” can contribute to financial inclusion, they also bring greater risks. To address concerns, only financial institutions that follow guidelines will initially be able to deal in Libra coins. Libra will set some restrictions on balances and transaction limits and will also create an “FIU-function: Financial Intelligence Function”, to monitoring activities on the network.

Forgoing the future transition to a permissionless system
Regulators raised several questions about the potential risk of preventing unknown participants from controlling the Libra system and removing key compliance regulations.  The network will limit access to its blockchain to authorized participants. In an effort to keep the network open and decentralized, the Libra Association will expand the number of memberships.

Building strong protections into the design of the Libra Reserve
To better protect token holders, the Libra Reserve will be a 1:1 reserve, with 80 percent in short-term, low credit risk and high liquidity securities and the remaining 20 percent in cash and CBDCs. The Reserve will mint and burn each stablecoin for market demand and the mechanism will be ruled by a group of regulators and central banks.

These changes could help Libra with regulation. They could also clear the way for more companies to join the association, by lowering the risk of backlash from regulators.

Winston Churchill said: “To improve, is to change; to perfect, is to change often”. In the lifetime of successful projects and startups, you’ll see one or two pivots. Sometimes a change in course of direction, that results in a material change in the product-market strategy is needed. This may sound like a Hail Mary, but the most critical decision for any project, is to know when to stay the course and when to turn.

While these developments mark a victory for regulators, they also raise questions about government roadblocks other potential and “less privileged” innovators could face. Time and time again, regulators in the US, Europe, China and elsewhere, have demonstrated that they will go to great lengths to halt initiatives and innovations they consider as threats, to their power and control.

The coronavirus lockdowns are making us rethink everything. They have highlighted the need for digital payment systems, that let people pay for things even when they were stuck at home.

Unfortunately, the changes to Libra make it less open and less decentralized. While they might not be the best way to move forward, if you’re Facebook and you want to grow, it’s better be in the game, instead of being sidelined. By taking this approach, Facebook can finally take the first step and get the approval to launch the project, even if it’s watered down.

For those that are disappointed, let me remind you we already have a proven decentralized digital currency, that lets anyone, anywhere send and receive money… Bitcoin!

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