Last July, the Office of the Comptroller of Currency (OCC) made a landmark decision allowing financial institutions to custody digital assets for customers and provide banking services for digital asset oriented businesses.
In the months following, the OCC has continued its progressive embrace of the crypto industry—just this week granting banks permission to contribute to public blockchains supporting stablecoins. While the guidance formally brings blockchain into the U.S. financial system, it’s important that banks understand how to build on the benefits of public blockchain networks to issue stablecoins.
The Case for XRP Ledger
The XRP Ledger (XRPL) is an open-source, decentralized blockchain technology that provides significant benefits for banks such as scalability, speed and cost. Financial institutions using it today leverage XRPL for its ability to fully settle transactions for fractions of a penny and in just 3-5 seconds—faster than any other major blockchain.
Built for payments, XRPL can also be used to support the issuance of stablecoins with a unique, fungible token functionality called Issued Currencies. Issued Currencies is designed to be the ideal stablecoin platform, providing simple but rich management functionality for the issuer that makes it easy to create, issue and manage any asset—including stablecoins.
Financial institutions can use Issued Currencies to issue stablecoins on the XRP Ledger. Using this functionality, an issuer simply needs to set up an issuing account and choose the configuration options desired for that particular stablecoin. Issued Currencies makes this process very straightforward, stable and highly secure to significantly lower business risks.
By taking the following steps, banks can issue stablecoins via Issued Currencies:
- Connect the issuing bank to the XRP Ledger. This involves establishing and connecting to an XRPL node, which can easily be done either on-premises or in the bank’s cloud infrastructure.
- Create a wallet and submit the resulting creation transaction on XRPL to enable stablecoin issuing and account management. Account credentials can be securely stored by either the issuing bank or a custodial partner.
- Configure the stablecoin settings according to the bank’s requirements. This is accomplished by simply selecting the desired settings and submitting a configuration transaction to XRPL from the managing account.
- Like the previous step, issuing a stablecoin is done through a simple, on-ledger transaction that creates stablecoins as the issuing bank receives deposits to back them.
Bridging a Multi-Asset Future
The XRPL has an integrated decentralized exchange (DEX) that allows neutral, counterparty-free digital assets like its native XRP to be seamlessly exchanged to and from “issued assets,” including stablecoins. Among its unique features is its payment interoperability which enables payments among those holding and receiving assets to minimize costs and work seamlessly when sufficient liquidity is available.
While neutral assets and stablecoins alike can be used to settle a payment, stablecoins have an issuer as the counterparty that does not allow them to interoperate across payment networks. XRP, on the other hand, can be sent directly without needing a central intermediary—making it best-suited to bridge two different currencies quickly and efficiently. Built for payments, XRP also can be leveraged to conduct complex transactions like foreign exchange (FX) or cross-border money transfers.
As banks and regulators increasingly shift toward a multi-asset future, understanding the benefits of public blockchain networks becomes critical.
To learn more about building on or with the XRP Ledger, please visit www.xrpl.org.