XRP holders now have the opportunity to borrow RLUSD stablecoin on Ethereum without needing to sell their assets, thanks to a new $280 million lending pool that has recently started accepting XRP-linked collateral.
Borrowing RLUSD Against Wrapped XRP
Flare, the blockchain platform enabling XRP's use in decentralized finance, announced on Monday that its wrapped XRP (FXRP) has been approved as collateral by Sentora, which oversees the $280 million lending pool for Ripple's RLUSD stablecoin.
With this new setup, users can post their wrapped XRP as collateral to secure RLUSD loans. This creates a dedicated FXRP/RLUSD market on Morpho Blue, allowing holders to leverage their XRP holdings instead of liquidating them. Importantly, access to this market does not require any permissions or whitelisting.
Sentora conducted a thorough assessment of FXRP's market behavior, oracle design, liquidity, and liquidation capabilities within an institutional risk framework before granting approval. The asset will continue to be monitored regularly, similar to other collateral types in the pool.
The current process for borrowing is somewhat complex. Users must mint FXRP using Flare's FAssets system, bridge it to Ethereum via Stargate, deposit it into the lending market, and then borrow RLUSD based on their chosen loan-to-value ratio. Flare is actively working on simplifying this process by developing Smart Accounts that would enable users to authorize the entire borrowing process directly from an XRP Ledger wallet, alongside the introduction of direct XRPL-to-Ethereum minting.
Hugo Philion, co-founder and CEO of Flare, emphasized that XRP is one of the largest cryptocurrencies yet remains underutilized in the DeFi space. He noted that having an institutional risk team endorse FXRP on the Ethereum mainnet is a significant development, beyond merely adding another bridge listing.
The isolated market structure is a key factor in this approval. Each market on Morpho Blue operates with its own collateral, debt assets, oracle, and liquidation thresholds, ensuring that any issues in the FXRP market do not affect the broader lending pool.
However, questions remain regarding scalability. Since its launch, approximately 155 million FXRP tokens have been minted, falling short of Philion's goal to attract 5 billion XRP into Flare's ecosystem within six months. The new lending market is initially capped at a conservative supply limit, which may be adjusted as demand increases.
CoinDesk has reached out to both Flare and Sentora for additional details regarding the supply cap, loan-to-value ratios, liquidation thresholds, and the sources for their oracles, and will provide updates as they become available.