Ripple is testing a new lending protocol for the XRP Ledger, enabling direct borrowing and lending of digital assets for institutions.
Ripple Tests New Lending Protocol for XRP Ledger
Ripple is moving forward with plans to enhance its XRP Ledger (XRPL) by testing a new lending protocol aimed at facilitating direct borrowing and lending for institutions. The company announced on Monday that developers have begun working on the XRPL Lending Protocol, which is contingent on validation from network validators.
Two key specifications, XLS-65 and XLS-66, are designed to introduce a native credit infrastructure to the XRPL, allowing financial institutions to manage agreements on-chain. This upgrade will enable the use of tokenized real-world assets, such as money market funds and commodities, as active capital on the ledger instead of letting them sit idle.
The XRPL Lending Protocol comprises two main components: the “Single Asset Vault” for asset pooling and the “Lending Protocol” that dictates loan terms and repayment procedures. Notably, the underwriting process occurs off-chain, meaning institutions retain control over credit assessments without recording them on the XRPL. Ripple emphasized that this separation mirrors traditional financial systems, enabling a broader range of credit models in the future.
While the protocol establishes rules for repayment schedules and interest rates once a loan is initiated, it also ensures that losses in the event of defaults are prioritized to capital from pool managers and underwriters, akin to conventional finance. Ripple pointed to established lending protocols like Aave as examples of on-chain lending, but noted that their governance does not align with Wall Street practices.
This initiative follows a pivotal moment in May, when Ondo Finance executed the first cross-border redemption of tokenized U.S. Treasuries using the XRPL. Ripple views this lending upgrade as a crucial element in the evolution of on-chain finance, asserting that simply transferring assets to the blockchain is insufficient.
The introduction of the XRPL Lending Protocol is expected to bolster the use of Ripple’s stablecoin, which has reached a market capitalization of $1.5 billion since its launch. As of Monday, XRP was trading at around $1.05, reflecting a decline of 8.2% over the week, marking its lowest price since November 2024, as it dipped close to a dollar alongside Bitcoin.
