Last July, the Office of the Currency Verifier (OCC) made a landmark decision that will enable financial institutions to hold digital assets in custody for customers and provide banking services to digital asset-oriented businesses.
In the months that followed, the OCC continued its gradual adoption of the crypto industry – just this week banks were given permission to contribute to public blockchains that support stablecoins. While the guidelines formally bring blockchain into the U.S. financial system, it is important that banks understand how to build on the benefits of public blockchain networks to issue stable coins.
The case for XRP Ledger
The XRP Ledger (XRPL) is an open source technology for the decentralized blockchain that offers banks significant advantages such as scalability, speed and costs. Financial institutions using it today leverage XRPL for its ability to complete transactions for fractions of a penny and in just 3-5 seconds – faster than any other large blockchain.
XRPL is designed for payments and can also be used to support the issuance of stablecoins with a unique, fungible token functionality called Issued Currencies. Issued currencies are designed as the ideal platform for stable coins, providing the issuer with simple but comprehensive management functions that make it easy to create, issue and manage assets – including stable coins.
Issue of stablecoins
Financial institutions can use issued currencies to issue stable coins on the XRP ledger. With this feature, an issuer only needs to set up an issuing account and select the configuration options desired for that particular stablecoin. Issued currencies make this process very simple, stable and highly secure in order to reduce business risks significantly.
The following steps can help banks issue stable coins via issued currencies:
- Connect the issuing bank to the XRP ledger. This includes setting up and connecting to an XRPL node, which can easily be done either on-site or in the bank’s cloud infrastructure.
- Create a wallet and submit the resulting creation transaction on XRPL for stable coin issuance and account management. Account credentials can be securely stored either by the issuing bank or by a custodian partner.
- Configure the stablecoin settings as per the bank’s requirements. This is achieved by simply selecting the settings you want and sending a configuration transaction to XRPL through the manager account.
- As in the previous step, issuing a stable coin is done through a simple transaction in the ledger that creates stable coins when the issuing bank receives deposits to secure them.
Bridging a multi-asset future
The XRPL has an integrated decentralized exchange (DEX) that allows neutral, counterparty-free digital assets such as native XRP to be seamlessly exchanged to and from “issued assets”, including stablecoins. Its unique features include payment interoperability, which enables payments between those holding and receiving assets, minimizing costs and working seamlessly when sufficient liquidity is available.
While neutral assets and stablecoins can equally be used to process a payment, stablecoins have an issuer as a counterparty that does not allow them to work together across payment networks. XRP, on the other hand, can be sent directly without the need for a central operator. This makes it best suited for bridging two different currencies quickly and efficiently. XRP was developed for payments and can also be used for complex transactions such as foreign exchange (FX) or cross-border money transfers.
As banks and regulators increasingly move towards a multi-asset future, understanding the benefits of public blockchain networks becomes critical.
You can find more information about building on or with the XRP ledger at www.xrpl.org.