Suggestion: XRP-collateralized Stablecoins

[JoelKatz]

One of the original use cases for the XRP Ledger (since 2012) was using the built-in decentralized exchange to exchange between stablecoins and to exchange stablecoins for XRP. Currently, only stablecoins that have a backer/issuer are supported.

We propose adding a collateralized stablecoin feature to the XRP Ledger. The key distinguishing property of this proposal is that the stablecoin is always redeemable for XRP on the ledger from the collateral pool. So, for example, if you hold one unit of a USD stablecoin, you can make on-ledger payments at any time just as if you held $1 worth of XRP.

We propose a scheme as follows:

• Anyone may place XRP into a position that they own.
• If the position is sufficiently collateralized, it may issue a stablecoin.
• Position owners may adjust the XRP in their positions so long as it maintains sufficient collateral.
• Position owners may issue and redeem stablecoins in their positions so long as it maintains sufficient collateral.
• Severely undercollateralized positions may be taken over by re-collateralizing them -- whoever does so keeps the remaining excess collateral.
• An order book mechanism will be used to permit the stablecoin to be automatically exchanged for XRP by redeeming against the least collateralized positions first.
• This encourages over-collateralization and cleans up positions that are in danger of becoming under-collateralized

Pathfinding will be augmented to use redemption against the collateral so payments with a stablecoin work the same as if you held the corresponding amount of XRP.

The scheme is not perfectly decentralized because some organization or federation still must supply the price the asset is pegged to on a continuous basis or the stablecoin will freeze. That organization can set a reserve ratio that they can use to tax the stablecoin system or to provide a reserve to buy out under-collateralized positions.

The most obvious application is a stablecoin pegged to a fiat asset such as the dollar. However, stablecoins can also be pegged to the value of precious metals, stocks, indexes, and so on. 

This post is one suggestion for an enhancement to the XRP Ledger. See this post for context:
https://www.xrpchat.com/topic/33070-suggestions-for-xrp-ledger-enhancements/

You can find all the suggestions in one place here: https://coil.com/p/xpring/Ideas-for-the-Future-of-XRP-Ledger/-OZP0FlZQ 

[mDuo13]

I think this one's really fascinating and has a lot of potential.

I'd love more clarification on how these points would work:

2 hours ago, JoelKatz said:

• If the position is sufficiently collateralized, it may issue a stablecoin.
• Position owners may adjust the XRP in their positions so long as it maintains sufficient collateral.
• Position owners may issue and redeem stablecoins in their positions so long as it maintains sufficient collateral.
• Severely undercollateralized positions may be taken over by re-collateralizing them -- whoever does so keeps the remaining excess collateral.

 

[tar]

@JoelKatz As far as I understood, someone locks a particular amount of XRP into his ledger account and therefore would be able to issue a "stablecoin" which is backed by XRP and therefore is only stable regarding a particular XRP amount (which he locked) but not towards other assets (and therefore currencies among them). Lets call this "stablecoin" "XRPS".

The first obvious question that arises is: Where is the advantage over using XRP directly? Isn't pathfinding already considering the available amounts of XRP on the ledger accounts? What would be the difference?

If you talk about other "stablecoins" that are collateralized by other assets (like USDT) several more questions arise:
1) Where are those "stablecoins" issued exactly? As you know, the issuer has to be a private organisation which is accountable/liable and therefore the ledger of those particular private party has to be used/included. Otherwise you are just creating XRPS on the XRP ledger.
2) How is the constant volatile price development between XRP (and therefore XRPS) and the alien "stablecoin" compensated?

[yxxyun]

similar to bitshare 's bitUSD concept 

https://bitshares.org/technology/price-stable-cryptocurrencies/

 

Edited October 2, 2019 by yxxyun

[Guest]

this is the coolest xrp idea i've heard in years -- thanks david, hope it goes through 

the xrp DEX really, really badly needs some love, some liquidity!  

Edited October 2, 2019 by Guest

[Hodlezerper]

I'm so pumped to see you all back on here...

[JoelKatz]

6 hours ago, tar said:

The first obvious question that arises is: Where is the advantage over using XRP directly? Isn't pathfinding already considering the available amounts of XRP on the ledger accounts? What would be the difference?

The advantage is that if you hold XRP directly, the value of what you hold changes over time. Some people want that, some people don't. This scheme lets those that want that hold XRP and those that don't can hold the stablecoin. Those that choose to hold the stablecoin have the equivalent of on-ledger XRP that is denominated in dollars, or whatever other peg they like.

 

Quote

If you talk about other "stablecoins" that are collateralized by other assets (like USDT) several more questions arise:
1) Where are those "stablecoins" issued exactly? As you know, the issuer has to be a private organisation which is accountable/liable and therefore the ledger of those particular private party has to be used/included. Otherwise you are just creating XRPS on the XRP ledger.
2) How is the constant volatile price development between XRP (and therefore XRPS) and the alien "stablecoin" compensated?

Someone creates a stablecoin pegged to some asset. The creator provides the price feed and governance. Then anyone who wants to can lock up XRP and issue the stablecoin. Holders of the stablecoin can redeem against the collateral. As the price changes, holders of the stablecoin have claims to changing amounts of XRP to keep the value of the stablecoin constant. Holders of XRP collateral have the value of the collateral change.

Say you have $100 worth of XRP and you really want to be long XRP. With this scheme, you could lock that $100 worth of XRP up as collateral and issue $50 worth of a USD stablecoin. You could then trade that for XRP and have $150 worth of XRP locked up as collateral. You now have a leveraged long position in XRP.

[Sukrim]

Maybe something like this could be already done with payment channels towards a price feed provider...? If you want it actually decentralized, you'll need to only consider on-ledger prices anyways and just calling an asset "USD" doesn't guarantee anything about it. There could be a "stablecoin" emulating certain individual IOUs maybe, but that would also be quite a bit meta in my opinion.

Personally I'm really sceptical about the idea of over- or underfunding some automated mechanism to emulate another asset. Who decides how much funding is enough? Your example locks 100 USD worth of XRP to get 70 "XRPstableUSD". Why not find a trustworthy gateway and get 100 of their USD IOUs or find an exchange and get 100 USD on their platform that you could actually withdraw?

All in all "stablecoin creators" would also just be something similar to gateways (maybe without the legal and regulatory issues) since there isn't one single "XRP <--> USD" exchange rate to begin with. I also am not so sure how this would deal with missing liquidity - if anything, overfunding would actually reduce liquidity of such coins compared to similarly risky IOUs.

[Malloy]

4 hours ago, zerpdigger said:

this is the coolest xrp idea i've heard in years -- thanks david, hope it goes through 

the xrp DEX really, really badly needs some love, some liquidity!  

I agree x1000

[Malloy]

4 hours ago, Hodlezerper said:

I'm so pumped to see you all back on here...

I kept wondering why I was coming back here now and then...now I can't wait to read the updates...

[Hodlezerper]

I have never been more bullish. The level of complexity of ideas they're working with and putting out is indicative that things are going bonkers over there.

[MrFreshXRP]

10 hours ago, JoelKatz said:

One of the original use cases for the XRP Ledger (since 2012) was using the built-in decentralized exchange to exchange between stablecoins and to exchange stablecoins for XRP. Currently, only stablecoins that have a backer/issuer are supported.

We propose adding a collateralized stablecoin feature to the XRP Ledger. The key distinguishing property of this proposal is that the stablecoin is always redeemable for XRP on the ledger from the collateral pool. So, for example, if you hold one unit of a USD stablecoin, you can make on-ledger payments at any time just as if you held $1 worth of XRP.

We propose a scheme as follows:

• Anyone may place XRP into a position that they own.
• If the position is sufficiently collateralized, it may issue a stablecoin.
• Position owners may adjust the XRP in their positions so long as it maintains sufficient collateral.
• Position owners may issue and redeem stablecoins in their positions so long as it maintains sufficient collateral.
• Severely undercollateralized positions may be taken over by re-collateralizing them -- whoever does so keeps the remaining excess collateral.
• An order book mechanism will be used to permit the stablecoin to be automatically exchanged for XRP by redeeming against the least collateralized positions first.
• This encourages over-collateralization and cleans up positions that are in danger of becoming under-collateralized

Pathfinding will be augmented to use redemption against the collateral so payments with a stablecoin work the same as if you held the corresponding amount of XRP.

The scheme is not perfectly decentralized because some organization or federation still must supply the price the asset is pegged to on a continuous basis or the stablecoin will freeze. That organization can set a reserve ratio that they can use to tax the stablecoin system or to provide a reserve to buy out under-collateralized positions.

The most obvious application is a stablecoin pegged to a fiat asset such as the dollar. However, stablecoins can also be pegged to the value of precious metals, stocks, indexes, and so on. 

This post is one suggestion for an enhancement to the XRP Ledger. See this post for context:
https://www.xrpchat.com/topic/33070-suggestions-for-xrp-ledger-enhancements/

You can find all the suggestions in one place here: https://coil.com/p/xpring/Ideas-for-the-Future-of-XRP-Ledger/-OZP0FlZQ 

Absolutely brilliant decision. Ripple is uniquely positioned with the XRP Ledger that has the perfect capabilities to successfully implement an XRP backed stablecoin. 

I noticed that there was no mention of using some of escrow release or Ripple stockpiling a stack of XRP in the Reserve Pool, prior to launching the stablecoin. 

Ripple has this unique benefit to bolster the reserve pool with additional XRP that no other stablecoin project has the ability to do. This would allow collateral  ratio to be raised slightly from say 70% to 85%. Even possibly closer to 100%. 

Eliminating the risk of the stablecoins in circulation to become under Collateralized. The scheme you described for liquidating under Collateralized loans would is ideal setup for the features available on XRP Ledger. 

Modes Ripple intend to bolster the reserve pool with XRP???

I would think this would set up an ideal business opportunity for companies to build front end applications and interfaces for users to be KYC/AML 

would this XRP backed stablecoin be targeted at RippleNet members and financial institutions, too??? It offers a fantastic opportunity to hedge XRP volatility  

This stablecoin would be the perfect compliment for XRP and Vice versa with XRP providing ODL. 

Would it only be traded on XRP DEX??? That would limit the chances of market volatility impact on the stablecoin. 

The XRP community needs to be deeply educated on Stablecoins and DeFi. Very few understand it. 

I’ve been waiting for this to be announced. Ever since kava Labs mentioned it,  it was so obvious that XRP Ledger and Ripple escrow could create the HOLY GRAIL of STABLECOINS. Nearly Overcoming the Trilemma that all stablecoins face. 

[Malloy]

29 minutes ago, Hodlezerper said:

I have never been more bullish. The level of complexity of ideas they're working with and putting out is indicative that things are going bonkers over there.

So the XRP Ledger dev. is alive...wow...is this a prank? 

[CountZerpula]

@JoelKatz - I'm wondering if you or anybody on the Ripple team would be willing to share some perspective on comments that Brian Kerr made recently at the Sept. 12th Singapore Cosmos meetup? I realize that there is only so much that can be put on the table for discussion here, but it's fascinating to watch all of this unfold. Here's what he said:

"We actually had one of our early investors, Ripple, ask us - ‘hey, we have all these MSBs, and they’re sending money .. with XRP using our platform called xRapid. But they don’t want to have the currency risk of XRP. Could you guys actually build us a stablecoin?"

https://youtu.be/Ej9uVbOtpeo?t=4588

The inquiry that Brian is referring to - how recently was it made, and was it borne more or less out of regulatory concern or that of market volatility? As @MrFreshXRP alluded, we know that Kava will be launching their CDP platform soon, which will likewise issue a stablecoin that can be collateralized with XRP. A few months back, Brian made these comments in the Kava Telegram describing one potential usecase for a then theoretical Kava XRP backed stablecoin (USDX): 

 

" ... if markets were made on xRapid integrated exchanges for USDX, the MSBs that use xRapid with XRP currently could use USDX instead, removing volatility risk while still having the speeds they desire."

Moving forward, how might any of what you're building now interoperate with what Kava is building, and moreover - in which ways can you envision one effort potentially benefiting the other?

[Gyru]

To me this is a very important move. 

Central Banks are speaking about stablecoins for months now. 

I really liked the idea to use the Cosmos but in this case you add a secondary layer (network) in the trust mechanism. 

A direct implementation on the xrpl would permit organisations like Moneygram to easily manage fiat operations and a growing pool of locked xrp would be beneficial for a global price increase of the asset (cascade on the liquidity part and reduce friction for a growing ecosystem). 

Is xPool here?

Is the future of the current eurodollar market here?