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Ripple’s stablecoin will have a ‘big impact’: a great economist
In a recent contribution For Finextra, Carlo RW de Meijer, independent economist and owner of De Meijer Independent Financial Services Advisory (MIFSA), provided an in-depth analysis of Ripple’s upcoming stablecoin launch. De Meijer, with nearly four decades of experience at institutions such as ABN, ABN AMRO and Royal Bank of Scotland, describes the initiative as a potential “game changer” for both the cryptocurrency sector and traditional finance (TradFi).
On April 4, Ripple presented its plans to introduce a stablecoin pegged 1:1 to the US dollar, aiming to represent a crucial development in bridging traditional finance (TradFi) and decentralized finance (DeFi). This move has been welcomed across both sectors, reflecting the growing institutional interest in the stablecoin market. De Meijer noted: “The launch of the Ripple stablecoin is expected to be a game-changer for the XRP Ledger ecosystem.”
Ripple’s stablecoin will be backed by a combination of US dollar deposits, short-term US government bonds and high-quality commercial paper, ensuring transparency and reliability. Reserves will be subject to periodic audits by a reputable third-party accounting firm, with monthly attestation reports made public. This “compliance-first” approach is aligned with global regulatory standards, a strategy designed to maintain trust among Ripple’s primary institutional and government clientele.
The stablecoin will initially launch on both markets XRP Ledger (XRPL) and Ethereum, joining the ERC-20 token standard. This dual launch is intended to improve adoption and utility across different blockchain ecosystems. Ripple plans to expand to additional blockchain and DeFi protocols over time, emphasizing interoperability and seamless interaction between various networks.
What does the economist expect from the launch of the Ripple stablecoin
Integrating the stablecoin with major cryptocurrency exchanges could increase its accessibility and liquidity, facilitating easier trading and broader adoption by individual users. However, no decision has been made on which exchanges it will trade initially.
The initial launch will be aimed at the US market, focusing on corporate customers and banking institutions. De Meijer notes that regional variations for markets in Europe and Asia could follow, driven by demand from emerging markets for stablecoin payments.
Ripple’s move to stablecoins for US transactions highlights the ongoing regulatory uncertainty surrounding XRP and should be seen as a response to regulatory challenges. “By offering a stablecoin backed by dollar-based reserves, Ripple aims to provide a regulatory-compliant alternative to XRP, thereby mitigating regulatory and investor protection concerns,” notes de Meijer.
Identify several strategic motivations behind Ripple’s stablecoin initiative. One of the main factors is the improvement of the XRP Ledger ecosystem. Issuing a stablecoin is expected to attract more users, increase liquidity, and drive the development of new financial applications.
Ripple sees its stablecoin as a key asset to expand its presence in digital payments, strengthen its strategic position and form new alliances in the financial markets. The stablecoin also aims to enhance Ripple Liquidity on demand (ODL) solution, addressing the volatility issues associated with XRP. This stablecoin could improve the efficiency and cost-effectiveness of ODL, enabling rapid transactions and providing a more stable asset for financial institutions and DeFi ecosystems.
Additionally, this development could unlock new opportunities for institutional and DeFi use cases across various industries, driving greater adoption and development within the XRPL ecosystem.
Despite the ongoing legal battle with the SEC, Ripple remains optimistic about launching its stablecoin later this year. De Meijer points out that the introduction of a stablecoin could pave the way for new applications beyond cross-border payments, such as remittances, micropayments and various DeFi activities.
This could increase demand for XRP and stimulate the growth of the XRPL ecosystem. The stablecoin’s compliance with high regulatory standards and its integration into major cryptocurrency exchanges could further strengthen Ripple’s presence in the market.
De Meijer believes the stablecoin could revolutionize cross-border payments, improve the functionality of the XRP Ledger ecosystem, and solidify Ripple’s position as a leading force in the blockchain and digital currency sectors. [The launch] it could have a great impact on both the world of cryptocurrencies and the traditional financial one, further reducing the gap between traditional finance (TradFi) and decentralized finance (DeFi)”, concludes the economist.
At the time of writing, XRP was trading at $0.51603.
Featured image from PYMNTS.com, chart from TradingView.com