Ripple’s New XRP Ledger Protocol Allows Banks To Borrow Against Tokenized Assets

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Ripple's New XRP Ledger Protocol Allows Banks To Borrow Against Tokenized Assets

Highlights

Ripple has revealed a native lending protocol proposal for the XRP Ledger.
Under this upgrade, the XRPL will be able to enable loans to banks and financial institutions.
These loans would be backed against tokenized assets and use on-chain credit infrastructure.

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Ripple has provided a new lending plan for the XRP Ledger (XRPL). It’s designed to allow banks, payment services, as well as other financial institutions to borrow tokens without offering them up for sale. This is in line with building the capacity of the institutional finance of the network.

About Ripple’s XRP Ledger Lending Protocol

Ripple’s proposed XRPL Lending Protocol aims to address the industry gap that is referred to as a gap in blockchain-based finance. The company believes that the credit infrastructure has been lagging behind, despite tokenization making it easier to issue and transfer digital assets.

In the proposal, Ripple said, “Moving an asset onchain is only half the job.” It added that real financial markets are about borrowing, collateral and liquidity, not just moving assets onchain. The protocol will enable tokenized treasuries, money market funds, stablecoins, commodities, private credit, and other real-world assets, the company added.

Also, Ripple said institutions will make lending decisions and compliance checks off-chain, rather than into the code of the blockchain. After a loan is agreed, the XRPL protocol will take care of loan servicing, repayments, calculation of interest and manage loan defaults.

The company noted that this design was chosen deliberately. Ripple added, “We made a deliberate choice to keep credit judgement off-chain, and standardize execution onchain.”

What Are The Components of This Proposal?

The plan includes two parts. The first is a Single Asset Vault for aggregation of a single asset for lending. Whilst, the second is a Lending Protocol for loan origination, servicing, and repayment. Ripple said that separating asset storage from financing is similar to the traditional capital markets where asset custody and lending infrastructure function separately.

For instance, a payment provider with a RLUSD reserve could use the protocol to take out a short-term loan for the time it takes to complete cross-border settlements, Ripple said. It would eliminate the risk of selling its assets or using expensive bank credit facilities.

The company also stressed the importance of compliance in the model. Lenders and borrowers would have to be verified prior to participating. Meanwhile, the access would be permissioned using credentials.

The protocol aims to help allocate risk in a structured way by providing for the first loss capital at the facility level instead of the loss being distributed among the participants, Ripple said.

However, the suggested features are described in XLS-65 and XLS-66. These lending protocol proposals still need to be approved by the XRP Ledger validators. For now, developers and infrastructure providers are allowed to start testing the lending framework on devnet of the XRPL.

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Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more… to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.