Validators on the XRP Ledger are currently evaluating two proposed changes aimed at integrating single-asset vaults and fixed-term lending into the network’s primary protocol.
Summary
- The proposed amendments, XLS-65 and XLS-66, have yet to achieve the 80% validator approval needed for deployment on the XRP Ledger mainnet.
- Single Asset Vaults would focus on pooling individual tokens, whereas XLS-66 aims to enable fixed-term, uncollateralized loans for institutions.
- Ripple has joined Clearpool and Cicada as a financial backer, but does not assure coverage against potential fund losses.
- RLUSD is intended to function as the credit asset, while transaction fees and reserves will be handled in XRP.
- For the amendments to take effect, support must exceed 80% for a two-week period, making the launch timeline uncertain.
The two amendments, known as XLS-65 and XLS-66, are presently undergoing a voting process among validators but have not yet garnered sufficient backing for implementation. A proposed amendment must obtain support from more than 80% of trusted validators for a duration of two consecutive weeks to move forward.
In August, Ripple’s validator cast votes in favor of both proposals. Nonetheless, Ripple is not in a position to independently approve the amendments, as the final decision lies with the validators.
As per the XRP Ledger’s amendment documents, current backing falls short of the necessary activation threshold. This percentage may fluctuate as validators adjust their positions, accentuating the importance of the two-week window following any threshold achievement over any singular daily reading.
XRP Ledger Lending: Distinguishing Credit from Execution
The XLS-65 amendment proposes the establishment of Single Asset Vaults. These mechanisms would allow depositors to pool a single asset type and receive shares that represent their stake in the collective asset pool.
Such a vault could encompass XRP, Ripple USD, or any other asset recognized by the XRP Ledger. A manager would oversee the vault and allocate the pooled liquidity to lending or various financial services in accordance with set guidelines.
The XLS-66 amendment would utilize this pooled liquidity to provide fixed-term loans. The proposed lending framework would be based on off-chain evaluations instead of automatic overcollateralization and liquidation processes.
Institutional entities would handle identity verification, borrower assessments, negotiation of loan agreements, and legal documentation outside the blockchain. The network would then document and execute actions like loan issuance, interest accrual, repayments, and defaults.
This method decreases dependency on smart contracts at the application level, but it doesn’t eliminate risks related to credit, operations, or counterparty interactions. Depositors remain at risk for losses if borrowers default or if underwriting proves insufficient.
Ripple, Clearpool, and Cicada Launch RLUSD Fund
While validators deliberate on the proposed amendments, product development is already underway. Clearpool is currently trialing an institutional credit product on the XRP Ledger’s development network.
The intended fund will provide RLUSD-based working-capital loans to fintech and payment enterprises. Cicada Partners will identify borrowers, set lending parameters, and monitor their financial health. Clearpool will offer the infrastructure necessary for establishing and managing the credit pools.
Ripple will join as a limited partner, contributing capital but without commitments to shield against losses incurred by other investors. Thus, Ripple will participate under equal conditions and not assure financial protection for others.
Details regarding the fund’s target size and Ripple’s specific investment remain confidential. As the RLUSD credit fund remains in testing, it cannot employ the proposed native lending capabilities on the mainnet until both amendments are adopted.
Clearpool indicated that its setup will utilize isolated markets operated by independent risk specialists. This strategy aims to prevent issues with a single borrower or pool from affecting the broader lending ecosystem.
Implications of the Lending Vote for XRP Holders
The proposed amendments could foster new applications for assets on the XRP Ledger, yet they do not guarantee yields for all XRP holders. Access will depend on which vaults become operational, the assets they accept, their qualification criteria, and the nature of their borrowers.
Institutional pools may employ restricted domains and verified credentials, meaning retail investors might not gain automatic entry. Each product could set distinct limitations based on geographical area, investor categorization, and compliance rules.
RLUSD is projected to be the primary credit asset for the Clearpool and Cicada fund, while XRP will maintain its role in covering transaction costs and reserve obligations.
Transaction fees on the XRP Ledger are eliminated rather than disbursed to validators. Higher lending activity has the potential to increase XRP fee consumption, although the fees are generally quite low. The impact on the total XRP supply will depend on ongoing transaction volumes and should not be labeled a significant source of scarcity until further usage data is available.
At the time of this writing, XRP was trading around $1.06, with no verified price changes evident as a direct result of the recent lending vote.
Security Assessments Do Not Mitigate Lending Risks
The lending code has undergone rigorous verification and independent security assessments. Halborn’s recent re-audit revealed no critical or high-risk vulnerabilities.
The review uncovered one medium-risk issue, two low-risk issues, and two informational findings, all of which were addressed, accepted, or acknowledged by Ripple’s engineering team, as per the audit report.
These evaluations focus on technical functionalities rather than guaranteeing borrower repayment. Institutions contemplating a vault must still scrutinize the manager, underwriting criteria, risk mitigation strategies, withdrawal policies, and concentration of exposure.
The forthcoming formal milestone is validator endorsement. Should either amendment reach the 80% approval threshold, it must maintain that level for two weeks. Additionally, Clearpool must finalize its development-network testing before transitioning its product to the mainnet.
A related application for a Federal Reserve master account submitted through Standard Custody remains distinct from the lending vote. Approval could enhance the RLUSD settlement infrastructure, but the outcome and timeline remain uncertain. BNY continues to serve as the main custodian for RLUSD reserves.