Global exchanges are getting ready for RLUSD trading as the former Reserve Bank of India governor and Boston Federal Reserve COO join the advisory board alongside Sheila Bair.
Ripple, a provider of digital asset infrastructure for financial institutions, is set to introduce its USD-pegged stablecoin on global exchanges starting December 17.
The stablecoin, named RLUSD, will first be available for trading on Uphold, a cryptocurrency exchange; Bitso, a Latin American digital asset platform; MoonPay, a payments infrastructure company; Archax, a regulated digital asset exchange; and CoinMENA, a Middle Eastern crypto exchange.
More listings are anticipated on Bullish, Bitstamp, Mercado Bitcoin, Independent Reserve, and Zero Hash in the upcoming weeks.
Regulatory framework and technology
The stablecoin functions under a limited-purpose trust company charter from the New York Department of Financial Services, a regulatory structure that mandates rigorous scrutiny of reserve assets and operational practices.
Every RLUSD token is backed by US dollar deposits, US government bonds, and cash equivalents. An independent auditing firm will publish monthly confirmations of these reserve assets.
“From the beginning, Ripple made a strategic decision to issue our stablecoin under the NYDFS limited purpose trust company charter, which is widely considered the top regulatory standard globally,” remarks Brad Garlinghouse, Ripple’s CEO.
“As the US heads towards clearer regulations, we anticipate increased adoption of stablecoins like RLUSD that provide genuine utility and are supported by years of trust and industry expertise.”
The stablecoin will function on both the XRP Ledger, a decentralized blockchain network, and Ethereum, a blockchain platform that allows for smart contracts.
This dual-chain strategy positions RLUSD for institutional uptake across various applications, including cross-border payments, treasury operations, and providing collateral for trading tokenized real-world assets such as commodities and securities on blockchain platforms.
Central bank experts join the advisory board
Two veterans from central banking have joined the advisory board of RLUSD to offer strategic insight regarding regulatory, financial, and operational issues.
Raghuram Rajan, the former Governor of the Reserve Bank of India, contributes his expertise in monetary policy and financial markets, while Kenneth Montgomery, the former First Vice President and COO of the Federal Reserve Bank of Boston, adds his operational experience in payment systems.
They join existing board members Sheila Bair, a former Chair of the Federal Deposit Insurance Corporation; David Puth, Vice Chairman of Partners Capital and formerly CEO of CENTRE Consortium; and Chris Larsen, co-founder and Executive Chairman of Ripple.
“Stablecoins have the potential to become the foundation of private payments by providing a safe, scalable, and efficient alternative to traditional systems,” states Raghuram Rajan, former Governor of the Reserve Bank of India.
Market integration and payments infrastructure
Ripple Payments, which has handled US$70 billion in payment volume across more than 90 markets, plans to integrate RLUSD in early 2025. The service accounts for 90% of daily foreign exchange activity, establishing a basis for institutional adoption of the stablecoin.
The token aspires to connect traditional finance with digital assets by enabling instant settlement and ensuring liquidity for remittance transactions.
Its integration with decentralized finance protocols—automated financial services that function without conventional intermediaries—unlocks new opportunities for institutional participants.
“Stablecoins could establish the foundation of private payments by offering a secure, scalable, and efficient alternative to traditional systems,” remarks Raghuram. “With its emphasis on compliance and reliability, RLUSD seeks to set new benchmarks for trust and to play a crucial role in shaping the future of payments.”
Investors will be able to start trading Ripple’s new stablecoin this Tuesday, as the company has announced following the New York State Department of Financial Services granting approval earlier this month.
The stablecoin, named ripple USD or RLUSD, is backed by the U.S. dollar and will be launched on the Ethereum blockchain and XRP Ledger. It will initially be available on certain global exchanges, with plans for broader availability soon. However, it won’t be accessible on Coinbase or Robinhood right away.
Jack McDonald, Ripple’s senior vice president of stablecoins, shared with CNBC that one of the motivations for creating a stablecoin is the increase in demand for cross-border payments. “Our increased usage of stablecoins in our operations highlighted the need for our own native stablecoin that could be more cost-effective and operationally efficient to use,” he stated.
This launch happens against a backdrop of growing optimism in the cryptocurrency sector for more favorable regulations in the upcoming term of President-elect Donald Trump. The Securities and Exchange Commission, under the leadership of crypto opponent Gary Gensler, notably targeted Ripple in a 2020 lawsuit alleging that the company sold XRP as an unregistered security. In 2023, a judge ruled that while XRP qualifies as a security when sold to institutions, it is not considered a security when sold to retail investors on exchanges.
The market capitalization for dollar-backed stablecoins has surged by 50% this year and has increased around 15% since the election. Tether (USDT) accounts for approximately 70% of the market, with Circle-issued USDC capturing about 20%.
McDonald noted, “The feedback from the market suggests that there is a desire for alternatives to the current market leaders — not necessarily to replace them completely but to provide an option.” He added, “There is some unease regarding the current concentration in the market, which regulators are paying attention to, as new institutions often prefer to avoid that concentration.”
Ripple, which has been operating for 12 years, is primarily focused on business-to-business payment solutions, with much of its operations conducted outside the U.S. The company serves banks, payment providers, and other financial institutions that require cross-border payment services. Although stablecoins have typically served trading purposes, other applications have emerged, and Ripple intends to use its stablecoin to enhance its existing offerings, as stated by McDonald.
“There is a role for both XRP and stablecoins in payments,” he mentioned. “We have historically supported various stablecoins in our payment solutions alongside utilizing XRP when it is appropriate. We will continue to leverage both XRP and stablecoins.”
XRP is the native currency of the open-source XRP Ledger and was developed by Ripple’s founders in 2012. The company employs XRP in its cross-border payment operations, with about 95% happening outside the U.S., and Ripple is the largest holder of XRP tokens.
“As we launch RLUSD on both Ethereum and the XRP Ledger, this increases the demand for XRP as a bridging asset on the XRP Ledger, which means having more credible assets traded on the decentralized exchanges that exist within the XRP Ledger benefits XRP,” he explained.
Earlier this year, Ripple announced its intentions to introduce a stablecoin to what is becoming a progressively competitive area within crypto, a sector that has been expanding even before the election. Last November, various firms including Robinhood, crypto exchange Kraken, and Galaxy Digital disclosed plans to collaborate on launching a joint dollar-backed stablecoin, USDG, as part of a “Global Dollar Network.” MercadoLibre has also rolled out its own, and it has been reported that fintech company Revolut is considering a similar project.
Stablecoins: Definition, How They Work, and Types
Stablecoins are a type of cryptocurrency that have their value linked to another currency, commodity, or financial asset. Their purpose is to offer an alternative to the extreme price fluctuations seen in popular cryptocurrencies like Bitcoin (BTC), making them more suitable for regular transactions.
Why Are Stablecoins So Significant?
While Bitcoin is the most widely recognized cryptocurrency, it is often subject to significant price volatility. For example, Bitcoin’s price jumped from nearly $5,000 in March 2020 to over $63,000 in April 2021, only to drop by nearly 50% in the following two months. Additionally, price swings within a single day can be drastic, with the cryptocurrency often fluctuating by more than 10% in just a few hours.
Such volatility can be advantageous for traders, but it turns simple transactions like purchases into treacherous speculation for both buyers and sellers. Investors with cryptocurrencies looking for long-term gains do not want to be known for spending 10,000 Bitcoins on a couple of pizzas. At the same time, many merchants hesitate to accept cryptocurrency payments, fearing they could incur losses if the cryptocurrency’s value drops after the transaction.
For a currency that isn’t considered legal tender to function as a medium of exchange, it must maintain a relatively stable value, ensuring those who accept it that it will preserve its purchasing power in the short term. In traditional fiat currencies, even daily fluctuations of 1% in foreign exchange trading are considered unusual.
As suggested by its name, stablecoins are designed to tackle this issue by committing to maintain the value of the cryptocurrency stable in various ways.
Investors need to be cautious when dealing with stablecoins because they depend on independent auditors to validate the collateral or reserves. Most auditors fulfill their responsibilities with integrity, but the requirement for an auditor indicates that there must be verification of commodity holdings. This need for an auditor brings a third party into a “decentralized” financial system that aims to eliminate entities typically associated with fraud and unethical behavior.
Some people might contend that stablecoins are merely solutions seeking a problem, especially considering the widespread availability and acceptance of the U.S. dollar. Conversely, many cryptocurrency enthusiasts believe that the future lies with digital currencies that are not regulated by central banks. Keeping this in mind, four categories of stablecoins have been created, based on the assets used to stabilize their values.
Fiat-Collateralized Stablecoins
Fiat-collateralized stablecoins hold a reserve of fiat currency (or multiple currencies), like the U.S. dollar, as collateral, providing assurance for the stablecoin’s value.
These reserves are kept by independent custodians and undergo regular audits, which should be approached with caution. Tether (USDT) and TrueUSD (TUSD) are well-known stablecoins backed by U.S. dollar reserves, valued equally to the dollar. As of late June 2024, Tether (USDT) ranked as the third-largest cryptocurrency by market capitalization, worth more than $112 billion.
Commodity-Backed Stablecoins
A sub-category of fiat-collateralized coins, commodity-backed stablecoins are cryptocurrencies pegged to the market value of various commodities such as gold, silver, or oil. These stablecoins typically store the commodity through third-party custodians or by investing in vehicles that hold them.
Tether Gold (XAUt), a cryptocurrency supported by gold reserves, is one of the most recognized commodity-backed tokens. It is believed that the gold is maintained by an unnamed custodian in Switzerland, as indicated by the terms of service, which state:
A Gold Token holder who has completed redemption may choose to receive physical delivery of their gold bar at a reasonable location in Switzerland (subject to applicable fees outlined in the Gold Token Fee Schedule at the time of redemption).
Crypto-Collateralized Stablecoins
Crypto-collateralized stablecoins are backed by other cryptocurrencies. Because the collateralizing cryptocurrency might also experience significant volatility, these stablecoins are usually overcollateralized, meaning the value of the held cryptocurrency exceeds that of the issued stablecoins.
For instance, to issue $1 million in a crypto-backed stablecoin, reserves worth $2 million might be maintained, safeguarding against a 50% drop in the reserve cryptocurrency’s value. An example of this is MakerDAO’s Dai (DAI) stablecoin, which is tied to the U.S. dollar but backed by Ethereum (ETH) and other cryptocurrencies valued at approximately 155% of the DAI stablecoin in circulation.
Algorithmic Stablecoins
Algorithmic stablecoins may or may not have reserve assets backing them. Their distinguishing feature is the approach of maintaining the stablecoin’s value by regulating its supply through an algorithm, essentially a computer program following a predetermined formula.
In some respects, this is similar to the actions of central banks, which also do not rely on a reserve asset to stabilize the value of their issued currency. However, unlike a central bank such as the U.S. Federal Reserve, which publicly sets monetary policy based on well-known criteria, algorithmic stablecoins function differently.
Algorithmic stablecoin issuers lack the ability to rely on such benefits during a crisis. On May 11, 2022, the value of the TerraUSD (UST) algorithmic stablecoin dropped by over 60%, destroying its connection to the U.S. dollar, as the price of the associated Luna token, which was used to maintain Terra’s peg, plummeted by more than 80% in a single night.
Stablecoin Regulations
Regulators are increasingly examining stablecoins due to the rapid expansion of the $162 billion market and its potential impact on the wider financial system.
In October 2021, the International Organization of Securities Commissions (IOSCO) recommended that stablecoins be regulated in the same manner as financial market infrastructure, including payment systems and clearinghouses. The proposed guidelines focus on stablecoins identified by regulators as systemically significant, those that could disrupt payment and settlement processes.
Additionally, U.S. lawmakers are amplifying their calls for stricter regulations on stablecoins. For example, in November 2021, Senator Cynthia Lummis (R-Wyoming) advocated for regular audits of stablecoin issuers, while others supported regulations for the sector akin to those for banks.
In 2024, Senators Lummis and Kirsten Gillibrand put forward a bill aimed at establishing a regulatory framework for stablecoins. Their suggested framework would prevent anyone from issuing a stablecoin unless they were a registered non-depository trust or a depository institution authorized to do so.
In Europe, the Markets in Crypto Assets Regulation, which came into effect in 2023, effectively bans algorithmic stablecoins, requiring all others to have their assets managed by a third party. Reserves must be liquid and maintain a 1:1 ratio of assets to coins.
Is Stablecoin a Bitcoin?
Stablecoins should not be confused with bitcoins. Their purpose is to offer a less volatile alternative to widely-used cryptocurrencies, making them more suitable for everyday transactions.
How Do Stablecoins Work?
Stablecoins target a market value linked to some external benchmark, typically a fiat currency. They serve as a more stable medium of exchange compared to fluctuating cryptocurrencies. Stablecoins can be linked to a currency like the U.S. dollar, the price of a commodity such as gold, or utilize algorithms to regulate supply. They also keep reserve assets as collateral or employ algorithmic methods intended to manage supply.
Which Is the Best Stablecoin?
The most prominent and largest stablecoin by market capitalization is Tether (USDT). It is pegged to the U.S. dollar at a 1:1 ratio and is supported by reserves. Tether consistently ranks among the top five cryptocurrencies by market cap. It can be found on most major crypto exchanges, including Kraken, Binance, and Coinbase.
The Bottom Line
Stablecoins are cryptocurrencies linked to other assets, such as fiat currencies or commodities held in reserve. Their primary goal is to develop a crypto asset with significantly reduced price volatility, making them more suitable for transactional purposes.
Stablecoins are becoming or have been regulated in various jurisdictions due to the instabilities and losses encountered in previous attempts to create stable coins.
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