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In 2020, the US SEC charged Ripple and its co-founders with violating securities laws by selling their native cryptocurrency, XRP, without registering it with the SEC.
Jakub Porzycki | Nurfoto | Getty Images
Cryptocurrency startup Ripple is the latest major player to enter the $150 billion stablecoin market with the launch of a digital currency pegged to the U.S. dollar.
Ripple says its stablecoins will always be backed on a 1:1 basis by an equal amount of assets the company holds in reserves (US dollar deposits, US Treasuries, cash equivalents).
The cryptocurrency company said its reserves will be listed in its publicly available monthly certification report. He did not say which company would conduct the audit.
Ripple will initially launch its stablecoin in the US, but did not rule out the possibility of offering additional regional products in markets outside the US, such as Europe and Asia.
The move puts Ripple up against stablecoin giants like Tether and USDC issuer Circle, which is behind the largest stablecoin UDST.
Major payment company PayPalMeanwhile, it has launched its own USD stablecoin called PayPal USD. This is a stablecoin backed by US dollars and dollar equivalents issued by the cryptocurrency company Paxos.
But Ripple CEO Brad Garlinghouse said the company is undaunted by the competition. “This market is going to be different. [in future]It’s certainly based on size,” he said in an interview with CNBC this week.
Why Ripple issues stablecoins
Garlinghouse said the company decided to introduce stablecoins to the market last year in response to the “depegging” of rivals Tether’s USDT token and Circle’s USDC.
USDT temporarily lost its $1 peg in 2022 amid market volatility due to the collapse of terraUSD, a popular so-called “algorithmic” stablecoin.
USDC also briefly fell below $1 in 2023 after disclosing its exposure to failed tech-focused lender Silicon Valley Bank.
Some critics have disputed the source of Tether’s reserves and questioned whether the company has enough capital to withstand a “fit and run”.
Tether, on the other hand, says its tokens are fully backed by high-quality reserves and are always ready for withdrawals, even under difficult circumstances.
Garlinghouse said there was “some uncertainty” among U.S. regulators about the current market leader, but he declined to name them. He claimed that Ripple is a regulated entity with licenses in New York, Ireland, Singapore, and other countries.
Tether is the stablecoin market leader with a market capitalization of $106.3 billion, according to data from CoinGecko. No comment was received from the company.
Tether is registered with FinCEN, the US financial crime watchdog, but this does not mean it is regulated. Companies are required to submit suspicious transaction reports and reports of transactions totaling more than $10,000.
Don’t give up on XRP
Ripple’s stablecoin could also serve the crypto giant’s purpose of promoting it as part of its on-demand liquidity products. It aims to use XRP tokens as a “bridge” currency to quickly settle transactions between banks and other financial companies.
Ripple is facing obstacles in finding use cases for Ripple with banks and payment companies.
Santander initially wanted to use XRP for cross-border payments, but chose not to after discovering that Ripple was not yet active in the market enough to support its needs. Did.
MoneyGram has ended its partnership to use XRP for cross-border remittances, citing increased costs associated with the need for partnerships with local market exchanges and other necessary trading partners.
Garlinghouse argued that Ripple has not given up on XRP as a payment token and that the stablecoin will serve as a more complementary product to the XRP ecosystem.
“We have been using stablecoins for our payment flows for years,” he said. “This is not new to us.”
He added that other so-called “layer 1” protocols, i.e. blockchain networks with their own tokens, are introducing stablecoins, increasing overall volume and liquidity.
“Our view is that there is a pool of liquidity inherent in the XRP ledger that will complement and help grow the XRP ecosystem,” Garlinghouse told CNBC. “In fact, the most common request we receive from the XRP community is to launch a USD-backed stablecoin on the XRP Ledger.”
According to data from CoinGecko, XRP is up about 13% in the past 12 months and is currently trading at about 57 cents.
‘Multi-million dollar’ settlement expected by SEC
The U.S. Securities and Exchange Commission sued Ripple in 2020, accusing it of illegally selling XRP to investors when the company should have registered the transaction with regulators.
A judge recently ruled that XRP itself is not a security, but said sales to institutional investors should count as illegal securities sales.
According to the U.S. District Court for the Southern District of New York, the blockchain company sold $728.9 million worth of XRP tokens to hedge funds and other sophisticated buyers.
The SEC is seeking $2 billion from Ripple as part of the lawsuit.
Garlinghouse said the SEC’s request is unreasonable because it only relates to the $728.9 million in XRP that the company sold to institutions.
He expects the total settlement will be a fraction of “millions of dollars,” rather than billions.
The SEC could not be reached for comment.
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