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Cryptocurrency firm Ripple launches US dollar stablecoin
In 2020, the US SEC accused Ripple and its co-founders of violating securities laws by selling its native cryptocurrency XRP without first registering it with the SEC.
Jakub Porzycki | Nurphoto | Getty Images
The cryptocurrency firm said its reserves will be accounted for in publicly available monthly attestation reports. It was not said which company will carry out the review.
Ripple is launching its stablecoin for the first time in the United States, but does not rule out offering additional regional products in non-US markets, such as Europe and Asia.
The move would pit Ripple against stablecoin giants such as Tether, which is behind the largest stablecoin USDT, and USDC issuer Circle.
Payments giant PayPalmeanwhile, it launched its own US dollar stablecoin called PayPal USD, a stablecoin backed by US dollars and dollar equivalents issued by cryptocurrency company Paxos.
But Ripple CEO Brad Garlinghouse said he is not deterred by the competition. “This market will look different [in future]definitely based on size,” he told CNBC in an interview this week.
Garlinghouse said the company decided to bring a stablecoin to the market last year in response to the “depegging” of Tether’s USDT token and Circle’s USDC.
USDT temporarily lost its $1 peg in 2022 due to market instability resulting from the collapse of terraUSD, a popular so-called algorithmic stablecoin.
The USDC also temporarily fell below $1 in 2023 after disclosing exposure to the collapse of tech-focused lender Silicon Valley Bank.
Some critics dispute the source of Tether’s reserves and doubt whether the company is sufficiently capitalized to survive a “bank run.”
For its part, Tether claims that its token is fully backed by quality reserves and has always been able to cope with withdrawals, even in times of difficulty.
Garlinghouse said there is “some uncertainty” about the current market leader among U.S. regulators, without revealing the name. She argued that Ripple is a regulated institution with licenses in New York, Ireland and Singapore, among other countries.
Tether is the largest stablecoin issuer in the world, with a market capitalization of $106.3 billion, according to data from CoinGecko.
When asked about Ripple’s move to launch a stablecoin and Garlinghouse’s comments, a Tether spokesperson told CNBC: “We hope the Ripple team has more success with their new stablecoin than they have had thus far.”
Tether is registered with FinCEN, the US financial crimes watchdog, which is not the same as being regulated. The company is required to submit suspicious transaction reports and business reports totaling more than $10,000.
A Ripple stablecoin would also serve the purpose touted by the cryptocurrency giant as part of its On-Demand Liquidity product, which aims to quickly settle transactions between banks and other financial companies using the XRP token as a “bridge” currency.
Ripple has faced obstacles in finding a use case 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 enough markets to support its needs.
MoneyGram entered into a partnership to use XRP for cross-border transfers after citing increased costs associated with the need for partnerships with exchanges and other necessary counterparties in local markets.
Garlinghouse insisted that Ripple has not given up on XRP as a payment token and that stablecoins would serve more as a complementary product to the XRP ecosystem.
“We have been using stablecoins in our payment flows for years,” he said. “This is not a new thing for us.”
He added that other so-called Layer 1 protocols – blockchain networks with their own tokens – have launched stablecoins and seen growth in overall volume and liquidity.
“Our view is that by having native liquidity pools on the XRP ledger, they complement and help grow the XRP ecosystem,” Garlinghouse told CNBC. “In fact, the number one request we receive from the XRP community is to launch a USD-backed stablecoin on the XRP ledger.”
According to data from CoinGecko, XRP has grown by around 13% over the past 12 months and is currently trading at around 57 cents.
The US Securities and Exchange Commission filed a lawsuit against Ripple in 2020, alleging that the company illegally sold XRP to investors when it should have registered the transactions with the regulator.
A court judge recently ruled that XRP is not itself a security, but said sales to institutions should be considered illegal sales of securities.
According to the US District Court for the Southern District of New York, the blockchain company sold its $728.9 million worth of its XRP token to hedge funds and other sophisticated buyers.
The SEC is seeking $2 billion from Ripple as part of its lawsuit.
Garlinghouse said what the SEC is asking for is unreasonable, as it only affects the $728.9 million of XRP sold by the company to institutions.
He expects the total settlement to be a fraction of that in “millions,” rather than billions, of dollars.
The SEC was not immediately available for comment.