Flare Founder Warns Recent XRPL Amendments Not Useful for XRP holders

Flare Network founder Hugo Philion has doubted the immediate usefulness of the lending model amendment of XRP Ledger for XRP holders. His statement comes as XRPL validators are moving closer to voting on major amendments.

What Is The New Lending Proposal On XRP Ledger?

The XLS-66 proposal proposes the implementation of a fixed term, uncollateralized lending scheme based on the liquidity pool of a single asset vault. Its design is based on off-chain underwriting to determine the creditworthiness of borrowers. If approved, it will allow configurable onchain loans.

Parallel to it, XLS-65 aims to create a so-called ‘Single Asset Vault system’. It aims to pool the funds of several users to facilitate the lending process on the XRP Ledger.

Flare Network Founder’s Views On XRP Ledger Lending Protocol Amendment

On X, Philion sounded an alarm on the proposed XLS-66 lending model. He said, “I believe it is of value to the XRP Ledger, I’m less certain it is directly of use to XRP holders.” For context, currently, the XRP Ledger community is considering two upgrades, XLS-65 and XLS-66.

Philion described a fundamental weakness of XRP’s use case in such a scheme. “For you, the XRP holder, to benefit [from] your XRP from XLS66 there has to be [a] demand to borrow XRP,” he wrote. Philion noted that since it is “not broadly used as a payment currency, demand to borrow XRP is actually relatively small.”

He compared this to collateral-based models citing such protocols as Morpho, in which users pledging assets to borrow stablecoins remain exposed. Philion added that Morpho protocol allows using XRP as collateral, which provides “direct value” to its use case.

In addition, Coinbase also accepts XRP as collateral for crypto loans. However, XLS-66 on XRPL focuses on lending demand rather than collateral utility, which might not favor XRP holders much, per Philion.

Nonetheless, he spotlighted other alternative uses for the Ripple native token in the framework. He mentioned that XRP would be useful in “providing first loss insurance to stablecoin vaults” to lower default risks. He also pointed out the ‘Confidential Compute’ feature of Flare as a solution to allow private lending without losing control of risk.

Validators Test XLS-66 & XLS-65

In the meantime, pre-developer testing has given positive responses. According to Fig, co-founder of Squid Router, the tests on XLS-65 and XLS-66 reported no problems with protocol implementation, design or security. He had confirmed that Squid Router will support the two proposals in the XRP Ledger voting schedule.

The evaluation was also supported by another validator called “Vet.” He commended the design decision of complex credit evaluation on-chain rather than using smart contracts.

In another development, XRP Ledger added on-chain privacy via XRPL Commons. It will allows institutions and builders on the network to keep sensitive financial data private while remaining completely auditable and regulatory compliant.