Ripple Labs has surprised the cryptocurrency scene by announcing plans to enter the $150 billion stablecoin market.
Promising a 1:1 peg to the US dollar and backed by a mix of US dollar deposits and Treasury bonds, Ripple believes it can inject “trust, stability, and utility” into the volatile and often controversial stablecoin market.
Launched in 2012, Ripple’s XRP token is one of crypto’s OGs, but this unexpected move puts Ripple Labs into direct competition with more recent entrants into the decentralised economy, chiefly Tether’s USDT stablecoin and Circle’s USDC stablecoin.
"This is a natural step for Ripple to continue bridging the gap between traditional finance and crypto,” said Brad Garlinghouse, Ripple’s chief executive.
“Institutions entering this space are finding success by partnering with compliant, crypto-native players and Ripple's track record and resiliency speaks for itself, as we launch new products and acquire companies through multiple market cycles.
“This move is also monumental for the XRP Ledger community, driving more use cases, liquidity and opportunities for developers and users.”
At launch, the stablecoin will be available on the XRP Ledger (XRPL) and Ethereum (ETH) blockchains, with plans to expand to additional blockchains and decentralised finance (DeFi) protocols and apps over time.
Ripple Labs has been locked in a fight with the US Securities and Exchange Commission since 2020 over the issuance of its XRP token.
SEC chair Gary Gensler has long argued that XRP is an unregistered security under the Howey Test, leaving Ripple Labs open to fines. However, Ripple Labs secured a win against the SEC last October, when the regulator gave up its challenge after three years of butting heads.
What are stablecoins?
Stablecoins are cryptocurrency assets pegged in price to another asset (typically the US dollar). Their stability makes them a popular on-ramp into the cryptocurrency market by stripping out the volatility inherent in unpegged cryptocurrencies.
Tether’s USDT stablecoin is easily the largest, with a current market capitalisation of $106 billion.
Circle’s USDC stablecoin is the next largest with a $33 billion market capitalisation. Binance’s USD (BUSD), DAI and Pax Dollar (USDP) are smaller alternatives.
Though they are meant to be packed 1:1 by US dollars (or another asset), there have been instances where claims about the backing reserves have been questioned, raising doubts about their stability and reliability.
Tether faced intense scrutiny from US lawmakers over the lack of transparency of its reserves.
The controversy heightened in 2021 when the New York Attorney General (NYAG) determined that Tether's parent company, iFinex Inc., and the affiliated cryptocurrency exchange, Bitfinex, of covering up an $850 million loss by inappropriately using Tether's reserves.
Attorney General Letitia James said Tether’s claims that USDT was fully backed by US dollars at all times “was a lie”.
TerraUSD (UST) stablecoin’s collapse in early 2022 was cited as one of the main reasons for the two-trillion-dollar rout in the cryptocurrency markets that year.
To alleviate past concerns about the safety of stablecoins, Ripple promised that its reserves “will be audited by a third-party accounting firm, and Ripple will publish monthly attestations”.