OPINION | Ripple Set to Launch US Stablecoin
Photo Credit: Michael Nagle/Bloomberg
Ripple, a blockchain-based digital payment network and protocol, has announced a plan to issue a US dollar-backed stablecoin on the XRP Ledger (XRPL) and Ethereum networks. The blockchain technology company’s main focus is building a payment settlement asset exchange and remittance system, similar to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system. The SWIFT system facilitates international money and cross-border payment transfers used by banks and financial intermediaries that deal across different currencies. Utilizing the XRPL as the underlying infrastructure for its native token cryptocurrency XRP, Ripple facilitates fast, secure, and cost-effective cross-border transactions. Additionally, it is designed to support a wide range of use cases beyond payments, including decentralised finance (DeFi) applications, tokenization, and smart contracts.
Ripple’s launch of its own US dollar-backed stablecoin signals a strategic expansion into the $160 billion stablecoin industry. A US-backed stablecoin is a cryptocurrency that maintains a value relative to the US dollar. It works by being backed by fiat currency reserves, government-issued fixed-income securities like US treasury bills, or a combination of both. This backing involves maintaining a reserve of assets equivalent to the total supply of stablecoins in circulation, typically at a 1:1 ratio with the US Dollar. When users purchase US stablecoins, they exchange their US dollars or other assets for the stablecoin tokens. Currently, stablecoins are mainly used for buying or selling crypto assets, facilitating cross-border payments, enabling DeFi applications, or storing a stable value by minimising the volatility associated with other cryptocurrencies.
This expansion into the $160 billion stablecoin industry would pit Ripple against Tether, which is behind the largest stablecoin USDT and USDC issuer Circle. Tether and Circle combined have a quasi-monopoly over the stablecoin ecosystem. Meanwhile, payment giant PayPal launched its own US dollar stablecoin called PayPal USD in August 2023.
However, Ripple CEO Brad Garlinghouse said the competition does not deter him. In a recent interview with CNBC, Garlinghouse said the company decided to introduce their stablecoin to the market last year in response to the “depegging” of the USDT and USDC. In 2022, USDT temporarily lost its $1 peg, the stabilised exchange rate, amid market instability resulting from the collapse of TerraUSD. USDC also temporarily fell below $1 in 2023 after revealing its exposure during the collapse of Silicon Valley Bank. Many have since disputed the liquidity of Tether’s reserves and have doubts about whether the company is sufficiently capitalised to survive a digital “bank run”. Tether says its stablecoin is fully backed by quality reserves and has always been able to meet its withdrawals, even in times of distress.
Ripple's decision to enter the stablecoin market despite a three-year ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) is primarily driven by financial interests, according to Ripple CTO David Schwartz. He noted that the stablecoin market presents lucrative growth potential for the company. "The stablecoin market is over $150 billion today and is forecasted to exceed $2.8 trillion by 2028," Ripple said in a statement shared with CoinDesk. USDC is currently the market leader among compliance-oriented stablecoin consumers, but Schwartz said he doesn't see it as "a winner takes all'' environment. He expressed optimism regarding Ripple's position in the stablecoin ecosystem, saying that even if they were to become a solid third player and the market expanded significantly, it wouldn't be considered a failure. He emphasised that such a scenario would still be favourable, indicating his confidence in Ripple’s potential success in the growing stablecoin industry. Schwartz also highlighted the potential of Ripple's stablecoin to boost utility and liquidity on the XRPL.
After its launch, the stablecoin will be available on the XRPL and Ethereum blockchains by the end of 2024, with plans to expand to additional blockchains and DeFi protocols and apps over time. “This is a natural step for Ripple to continue bridging the gap between traditional finance and crypto,” said Garlinghouse.