In early April 2024, blockchain company Ripple (XRP) announced plans to launch a US dollar-pegged stablecoin to support the growth of its public blockchain XRP Ledger (XRPL).
While Ripple CEO Brad Garlinghouse called the stablecoin launch a “natural step for Ripple,” the company will find itself in an overcrowded yet lucrative $150 billion stablecoin market that is often in the crosshairs of lawmakers and regulators.
What does Ripple’s stablecoin mean for XRP? Will it rival Tether (USDT), USD Coin (USDC), and other key stablecoin market players?
Key Takeaways
- Ripple will launch a stablecoin on the XRP Ledger and Ethereum.
- Ripple aims to launch a “compliance-first” stablecoin aimed at institutional clients.
- Critics fear that a Ripple stablecoin will make the XRP token obsolete.
- Meanwhile, Anndy Lian, an intergovernmental blockchain expert, said Ripple’s dual-asset approach could improve the overall payment experience for customers.
- Tether’s early-mover advantage has made USDT the most popular stablecoin in the world, accounting for 72% of stablecoins’ daily trade volume.
Why Is Ripple Launching a Stablecoin?
Stablecoins are unique digital assets that offer the best of traditional and decentralized finance (DeFi). Crypto investors use these fiat-pegged tokens to facilitate trade, provide liquidity for currency hedging, and protect their portfolio against crypto market volatility. Another area in which stablecoins have shown immense promise is international remittances and inflation hedging.
Therefore, it is no surprise that Ripple, a company that provides cross-border payment, custody, crypto liquidity, and central bank digital currency (CBDC) solutions, is entering the stablecoin market.
The company said:
“Ripple will leverage both XRP and the stablecoin in its payment solution to further improve the customer experience and serve as the first enterprise use-case of the asset at scale. There is demand from Ripple’s customers in emerging markets to enable stablecoin payouts.”
According to Ripple’s statement, the company will issue US dollar-pegged stablecoins that will be 100% backed by US dollar deposits, short-term US government treasuries, and other cash equivalents. The stablecoin will be available on XRP Ledger and Ethereum (ETH).
In order to catch up to market leaders Tether’s USDT and Circle’s USDC, Ripple is prioritizing the issuance of a “compliance-first” and trustworthy stablecoin. Having a compliant stablecoin will be key for Ripple to keep hold of its primary clientele composed of institutions and governments.
What Does a Ripple Stablecoin Mean for XRP?
A burning question on every XRP investor’s mind is whether the upcoming Ripple stablecoin will complement the XRP token or render it obsolete.
Some think the Ripple stablecoin will bring the “death of XRP.” At the moment, XRP is primarily used as a bridging asset to facilitate cross-border payments on the XRP Ledger. For example, when a user converts Turkish Lira (TRY) to USD, the XRP Ledger first converts TRY to XRP and then converts XRP to USD. XRP is the bridging currency as it is the native token and, therefore, the most liquid asset on the XRP Ledger.
Now, the entry of a Ripple stablecoin threatens XRP’s position as the bridging currency. Not only will a stablecoin offer a non-volatile alternative for currency swaps, but the compliance-first nature of the asset will help calm the nerves of Ripple’s risk-averse institutional clients.
Back in 2021, money transfer services company MoneyGram International canceled its partnership with Ripple after the US SEC labeled XRP as an “unregistered security.” The case that began in December 2020 is still ongoing as of April 9, 2024.
Contrary to the lingering pessimism, Anndy Lian, an intergovernmental blockchain expert, was optimistic about Ripple’s “dual-asset approach” to creating blockchain-based enterprise-grade solutions that financial institutions need.
Lian told Techopedia:
“Ripple’s approach to leveraging both XRP and its stablecoin could offer the best of both worlds: the speed and technology of XRP with the stability and reliability of a stablecoin. Ripple’s USD-backed stablecoin is designed to be used alongside XRP in Ripple Payments to support greater liquidity and enable global on/off ramps to service cross-border payments demand at scale. This dual-asset approach could improve the overall payment experience for customers worldwide.”
The expert believes that while XRP serves as a bridge currency facilitating quick conversions between different fiat currencies, the introduction of a stablecoin could provide a less volatile option for the actual store and transfer of value, which might be particularly appealing in emerging markets where there’s demand for stablecoin payouts.
“The combination of XRP and a stablecoin in Ripple’s ecosystem is aimed at enhancing the efficiency and stability of cross-border payments,” he said.
Lian added that some analysts expect a 17% increase in XRP price following the stablecoin launch. He said:
“This is based on early on-chain movements that suggest investors are positioning for a positive price impact. Long-term predictions for XRP’s price remain optimistic, with some analysts suggesting the formation of a pennant structure over the past four years, indicating potential for significant price movements.”
Will the New Ripple Stablecoin Rival Tether and USDC?
Ripple will find it an uphill task to overtake market leaders Tether and Circle in the stablecoin market.
Despite clashes with regulators, Tether’s USDT continues to dominate the stablecoin industry. As of April 9, 2024, USDT’s market cap stood at over $107 billion, accounting for more than 71% of the total stablecoin industry market cap, CoinMarketCap data showed.
Tether’s early-mover advantage has made USDT the most popular stablecoin in the world. At the time of writing, USDT accounted for 72% of stablecoin daily trade volume.
Meanwhile, Circle’s USDC, which launched in September 2018, has eaten into USDT’s market share over the years due to its branding as the safest stablecoin in the market.
Circle’s close affiliation with influential crypto companies like Coinbase has also helped the USDC brand. As of April 9, 2024, USDC was the second largest stablecoin with a market cap of $32.6 billion (21% of cumulative stablecoin industry market cap) and a 24-hour trade volume of $7.8 billion (8% of total stablecoin daily trade volume at the time of writing).
Furthermore, Ripple’s plans to launch its stablecoin on the Ethereum blockchain means that its stablecoin will have to compete with innovative DeFi products such as MakerDAO’s multi-collateralized stablecoin DAI, Frax Protocol’s algorithmic stablecoin FRAX and Ethena Labs’ synthetic dollar USDe.
Ripple will find competition in the compliance-first stablecoin space as well. In the same week as Ripple’s stablecoin launch announcement, Agora announced the launch of its fully collateralized stablecoin, the reserve fund of which will be managed by global investment powerhouse Van Eck.
The Bottom Line
If there is one crypto product that has a product-market fit, it is stablecoins. Ripple’s venture into stablecoin could mark a new chapter for the XRP community.
For too long, Ripple has been associated with its fight against the US SEC. Maybe a stablecoin launch will bring back the spotlight on its blockchain products.
Source: https://www.techopedia.com/is-ripple-stablecoin-launch-bearish-for-xrp
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
