DeFi
Ripple Institutional DeFi Could Unlock Bitcoin ETF Collateral Value: Ripple CTO
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At Consensus 2024, Ripple Chief Technology Officer David Schwartz discussed the untapped potential of DeFi on the XRP Ledger (XRPL) for institutional use. Schwartz highlighted the current limitations Bitcoin ETF holders face when seeking loans, with brokers pricing these assets at zero due to volatility concerns.
“You know how much brokers value Bitcoin ETF holdings as collateral on loans? Zero,” Schwartz said.
Schwartz explained that brokers, such as Charles Schwab, are hesitant to accept Bitcoin ETFs as collateral due to the potential volatility and risk associated with these assets.
“Imagine you are a broker and you have many clients who hold the Bitcoin ETF. For all you know, this ETF could explode tomorrow if you go to zero, you don’t want to take a lot of risk,” he said.
This limits the ability of investors to leverage their cryptocurrency holdings to obtain loans within the traditional financial system. However, Schwartz believes that institutional DeFi on XRPL could provide a solution to this problem.
Ripple’s vision for institutional DeFi on XRPL involves the creation of regulated “islands” that enable adoption by both institutions and retailers. Schwartz cited stablecoins as a great example of how this could work, with regulated entities like Circle and Ripple issuing stablecoins that can be used in DeFi ecosystems.
“The vision is these regulated islands, but which allow challenging applications,” he explained. “If you have an island that’s not connected to anything outside of that island, why put it on a public block? ”Schwartz said.
Schwartz also discussed the potential for other technologies, such as decentralized identities (DID) and automated market makers (AMM), to further bridge the gap between traditional finance and institutional DeFi on XRPL.
“What this allows is it allows the customer, it allows the company to say, you know, Fractal ID has verified this person’s identity. So, not only do we not have to bear the cost of doing this, but we also do not need to store the identity data,” he said.
AMMs, on the other hand, could provide ongoing liquidity for a wide range of assets, benefiting both retail and institutional participants.
“This provides continuous liquidity at all times, which is good for the long tail,” Schwartz added.
Ripple’s CTO highlighted the importance of interoperability in creating a compelling blockchain ecosystem.
“Ripple cannot be the only successful blockchain company. Electric XRP cannot be the only successful blockchain. It’s impossible, because no one thing can do everything,” he said.
Seamless interoperability is crucial for users to access the full potential of the ecosystem, and partnerships with companies like Axelar, which focus on building bridges between blockchains, are seen as essential steps towards achieving this goal. .
As the blockchain industry continues to evolve, Ripple’s approach to institutional DeFi on XRPL aims to provide a framework for increased adoption and liquidity. By leveraging stablecoins, DIDs, AMMs, and interoperability solutions, Ripple hopes to create a more inclusive and efficient financial system that benefits both institutional and retail participants.
“Our mission is for the XRP ledger to be a leader in bringing together more examples through things like the Lending Protocol, with things like AMMs, through the tokenization of real-world assets,” Schwartz concluded.
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