Ripple Developers Aanchal Malhotra and Vito Tumas introduced a revolutionary proposal for a native lending protocol on the XRP Ledger (XRPL). If adopted, this proposal is expected to expand the network’s decentralized finance (DeFi) capabilities and increase The XRP Utility.
What is the lending protocol on XRP Ledger?
Ripple’s development branch, RippleX, developed in an X (formerly Twitter) job that the lending protocol will allow users to borrow and lend digital assets peer-to-peer (p2p) without the need for “unnecessary intermediaries”. The protocol will use a modular design which focuses on “flexibility and reusability”.
Additionally, the modular design will introduce three specifications. The first is the XLS-64d, which will allow a single pseudo-account to be associated with “multiple accounting entries to track balances and issue tokens”. The second is the XLS-65d, which “defines a new “Pool” ledger entry for a single pool of tokenized assets.
XLS-66d is the third specification and will leverage XLS-65d to manage liquidity provider (LP) assets. “It also introduces off-chain underwriting, on-chain agreements and loan management.” RippleX further revealed. Regarding the operation of the loan protocol, LPs will submit their crypto assets into a pool of loans to earn interest.
These loan pools will be managed by “pool delegates”, who will be responsible for attracting capital from potential lenders and granting loans to borrowers. Pool delegates will also be responsible for agreeing loan conditions with borrowers. This will be done off-chain, after which the agreement will be recorded on-chain.
The lending protocol will focus on fixed-term loans
THE proposed loan protocol will focus on fixed term loans and operate based on pre-defined terms regarding interest between the pool delegate and the borrower. Interestingly, the need for collateral is eliminated thanks to the off-chain underwriting and risk management introduced by the XLS-66d.
There will also be a first loss protection system for lenders in the event of default. Pool delegates can provide first loss capital to cover any potential default. Meanwhile, these loans will be managed through “a new general ledger object ‘Loan’”.
The object will manage loan funding and withdrawals, payment amounts and schedules, and interest and principal payments. In case of default, the loan ledger object will also take care of it and direct the recovery of the loan.
This development is undoubtedly optimistic for the XRP ecosystem and could have a positive impact on the price of XRP in the long term. This also comes on top of several other bullish developments that have occurred in the ecosystem recently. These include the proposed launch of a stablecoin on XRPL and the new one launched Automated Market Maker (AMM).
At the time of writing, XRP is trading at around $0.49, up over 1% in the last 24 hours according to data from CoinMarketCap.
Token price fails to hold $0.5 | Source: XRPUSDT on Tradingview.com
Featured image from Forkast News, chart from Tradingview.com
