Ripple’s New XRP Ledger Protocol Allows Banks To Borrow Against Tokenized Assets

Ripple has proposed a native lending protocol for the XRP Ledger (XRPL) designed to allow banks, payment services, and other financial institutions to borrow tokens without selling them. The initiative aims to strengthen the institutional finance capabilities of the network.

The proposed XRPL Lending Protocol seeks to address what Ripple describes as a gap in blockchain-based credit infrastructure. Despite tokenization simplifying asset issuance and transfer, the company believes credit infrastructure has lagged behind. Ripple stated, “Moving an asset on-chain is only half the job,” adding that real financial markets depend on borrowing, collateral, and liquidity, not just moving assets on-chain.

Under the protocol, tokenized treasuries, money market funds, stablecoins, commodities, private credit, and other real-world assets can serve as collateral. Institutions will handle lending decisions and compliance checks off-chain, while the XRPL protocol manages loan servicing, repayments, interest calculation, and defaults. Ripple noted this design was deliberate: “We made a deliberate choice to keep credit judgment off-chain, and standardize execution on-chain.”

The plan comprises two components: a Single Asset Vault for aggregating a single asset for lending, and a Lending Protocol for loan origination, servicing, and repayment. This separation mirrors traditional capital markets where asset custody and lending infrastructure operate independently. For example, a payment provider holding an RLUSD reserve could use the protocol to obtain a short-term loan for cross-border settlement without selling assets or relying on expensive bank credit.

Compliance is central to the model—lenders and borrowers must be verified before participating, and access is permissioned via credentials. The protocol also introduces first-loss capital at the facility level to structure risk allocation rather than distributing losses among participants.

The features are detailed in proposals XLS-65 and XLS-66, which require approval from XRP Ledger validators. In the meantime, developers and infrastructure providers can begin testing the lending framework on XRPL’s devnet.

Source: https://coingape.com/ripple-new-xrp-ledger-protocol-allows-banks-to-borrow-against-tokenized-assets/