- The “Issued Currencies” function of the XRP Ledger allows financial institutions to create and operate stablecoins.
- XRP can be used as a bridge between stablecoin issuers and payment networks.
Ripple’s CTO, David Schwartz, has made a publication going in-depth on the features and benefits of the XRP Ledger for financial institutions seeking to issue a stablecoin. Schwartz argues that the decision by the U.S. Office of the Comptroller of the Currency (OCC) to allow transactions to be settled in a public blockchain presents both challenges and opportunities:
(…) the guidance formally brings blockchain into the U.S. financial system, it’s important that banks understand how to build on the benefits of public blockchain networks to issue stablecoins.
In the publication, Ripple’s CTO highlights the “decentralization, scalability, speed” and cost reduction features offered by the XRP Ledger. He then states that the platform’s Issued Currencies feature has been specifically designed to allow financial institutions to create, issue, and manage “any asset including stable currencies”.
The process of issuing asset classes only requires the financial institution to set up an XRPL node. Thus, the institutions can open an issuing account and choose the configuration options desired for that particular stablecoin. Afterwards issuers can connect the node to the bank’s payment network or the payment network of the issuer of the stablecoin.
The next step is to create a wallet that will hold the issuer’s funds and submit the “stablecoin creation” transaction on the XRP Ledger. In this way, the entity will have access to its account credentials to proceed to configure the stablecoin according to its needs and requirements. Schwartz added:
(…) Issued Currencies makes this process very straightforward, stable and highly secure to significantly lower business risks. (…) issuing a stablecoin is done through a simple, on-ledger transaction that creates stablecoins as the issuing bank receives deposits to back them.
XRP as a neutral asset for stablecoin issuers
In conjunction with the Issued Currencies function, the XRP Ledger platform offers a “decentralized exchange” (DEX). The DEX facilitates the exchange between assets issued over the network, including the native asset XRP.
It also has features to enable payment interoperability, low-cost asset receipt, and use of the XRP “as a bridge asset”. According to Schwartz, this facilitates the connection between a stablecoin issuer and a network to settled transactions without a central intermediary. In conclusion, the CTO of Ripple stated:
As banks and regulators increasingly shift toward a multi-asset future, understanding the benefits of public blockchain networks becomes critical.