Yesterday Ripple announced its preparation for the launch of its RLUSD stablecoin. It announced an array of cryptocurrency exchanges that are prepared to list it, and revealed that it will be issued under a New York Trust Company Charter.
When will it receive clearance to issue?
Oddly, the announcement did not say ‘subject to regulatory approval’ unlike the Ripple website. Perhaps it already has the all clear. Notably, the leader of the regulator (NYDFS) appeared at Ripple’s Swell conference this week.
Ripple has had a New York virtual currency license for eight years. In February it acquired Standard Custody, which holds a New York Trust charter. Using a trust rather than a more permissive license provides greater protection for client funds. However, a virtual currency and money transmitter license is more flexible for the issuer.
Trust companies have to get approval for every blockchain on which the stablecoin is issued. To date, the NY State Department of Financial Services (NYDFS) has only approved trust stablecoin issuances on Ethereum and Solana. Hence, the XRP Ledger involves work for the NYDFS to review it.
That’s why Paxos USDP and PayPal’s PYUSD are only available on Ethereum and Solana, compared to Circle’s USDC, which is available on more than a dozen blockchains. Circle issues under New York Virtual Currency and Money Transmitter Licenses, not a trust charter.
How will RLUSD impact the use of XRP?
When Ripple first announced plans for the stablecoin, the XRP community seemed concerned.
Our focus here is on functionality, not price movement. To date, XRP has had two key functions. Firstly, as with other blockchains it is the native token of the XRP Ledger. So the more popular the XRP Ledger is, the more utility XRP will provide.
The other major use case has been as the intermediary currency for cross border payments. If someone wants to send a payment from Brazil to India, they exchange Brazilian Real for XRP and XRP for rupees. This means that all currencies only every need to be quoted against XRP.
However, outside of the XRP Ledger, the US dollar often fulfils this role. Most currencies have their most liquid price quoted against the dollar. A US dollar stablecoin should make a better intermediate currency because it (hopefully) is less volatile than XRP and the pricing should be more predictable, because there are off-chain reference prices.
However, that partly depends on the liquidity of Ripple’s stablecoin. If it’s not liquid, then the FX spreads will be wide, which will discourage use. Providing RLUSD has sufficient liquidity, it should encourage more usage of the XRP Ledger.
In the past banks that previously used Ripple solutions complained to Ledger Insights about the company conflating them as clients with XRP usage, despite the banks not using XRP. However, they were generally complimentary about Ripple technology.
Ripple’s payments experience with banks, money transfer firms and more recently with a few central banks should mean Ripple stands a chance of helping stablecoins to go mainstream for payments. So Ripple’s stablecoin launch could expand usage of the XRP Ledger. However, despite its advantages, it has a ton of competition.
The partners
Meanwhile, the crypto exchange partners that Ripple announced for the stablecoin are: Uphold, Bitstamp, Bitso, MoonPay, Independent Reserve, CoinMENA, and Bullish. Additionally, B2C2 and Keyrock will act as market makers.
Plus Ripple announced an advisory board including former Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair, Vice Chairman of Partners Capital and former CENTRE Consortium CEO David Puth, and Ripple co-founder and Executive Chairman Chris Larsen. Puth is also the former CEO of CLS, the central counterparty (CCP) responsible for the settlement of trillions in FX every day (yes daily!).
As we’ve previously written, the stablecoin winners are likely to be ones willing to share some of the interest revenue on the reserves with distributors.
Ledger Insights Research has published a report on bank-issued stablecoins and tokenized deposits featuring more than 70 projects. Find out more here.
