Ripple’s XRPL: Bridging the Gap Between Banks and On-Chain Activity
In the ever-evolving world of blockchain technology, Ripple’s Chief Technology Officer, David “JoelKatz” Schwartz, has provided clarity on the divergence between Ripple’s extensive bank partnerships and the relatively low activity on the XRP Ledger (XRPL). This explanation comes in response to a series of probing questions posed by investor and YouTuber Andrei Jikh. Schwartz’s insights, shared on social media, shed light on the compliance challenges, institutional behavior, and the prospective “permissioned domains” model that significantly influence institutional flows remaining largely off-chain.
Understanding the Discrepancy: Ripple’s Bank Alliances and XRPL Volume
Jikh’s inquiry reflects longstanding criticisms: with over a decade of development and “300+ bank partnerships,” why doesn’t the XRPL handle “billions in daily on-chain volume?” Additionally, why would entities opt for a volatile asset like XRP over stablecoins, and do bridge assets still hold relevance in a world teeming with fiat-linked tokens? These questions also delve into tokenization strategies, such as why a major entity like BlackRock would choose the XRPL over a proprietary chain, and the geopolitical risks for non-U.S. users.
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Schwartz offered a candid explanation regarding the limitations faced by regulated entities, which cannot risk transacting with illicit counterparties on public decentralized exchanges. He emphasized that even Ripple is unable to leverage the XRPL DEX for payments due to potential counterparty risks. The introduction of “permissioned domains” aims to address this issue, allowing compliance-bound participants to engage with rule-enforced counterparties. Despite the slow transition of institutional flows to on-chain activities, Schwartz believes institutions are beginning to recognize the benefits.
The Role of XRP in a Stablecoin-Dominated Environment
Addressing the stablecoin question, Schwartz challenged the notion that XRP’s volatility makes it unsuitable for payments. He argued that there are scenarios where volatility is advantageous or even beneficial. He further explained that a successful bridge currency requires inventory, as someone must hold it to facilitate transactions when needed. Holding the dominant bridge asset is a rational choice for users uncertain about future asset requirements, as it allows for cost-effective transitions from a liquid hub asset to the next needed asset.
Schwartz also discussed the significance of bridge assets in a market increasingly dominated by stablecoins. While acknowledging the potential for a single stablecoin to act as a bridge, he contended that no single stablecoin could prevail due to their stability being tied to specific fiat currencies and jurisdictions. This multi-stablecoin reality leaves room for a neutral bridge to connect a diverse array of tokenized assets.
Why Major Players Like BlackRock Prefer XRPL
When asked why a major player like BlackRock wouldn’t simply create its own blockchain for tokenization, Schwartz downplayed the importance of chain homogeneity in an interconnected world. He encouraged skeptics to question why Circle doesn’t launch USDC exclusively on its blockchain, highlighting the value found in ubiquity and liquidity across various networks.
On geopolitical considerations, Schwartz clarified that the XRPL serves as neutral infrastructure, distinct from Ripple’s enterprise products, which are jurisdiction-specific. He emphasized that the ledger remains open to all participants and does not discriminate, although certain corridors remain inaccessible due to licensing regulations.
The Continued Relevance of XRP in Ripple’s Ecosystem
Schwartz underscored the significance of XRP within Ripple’s payment infrastructure, noting that much of its utility may not be visible on public ledgers. He expressed confidence in XRP’s role as a bridge in Ripple Payments, attributing its prominence to its privileged position on the XRP Ledger.
As of the latest market update, XRP is trading at $3.13. Ripple’s commitment to innovation and strategic partnerships continues to shape its evolving narrative in the blockchain landscape.
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