In the ever-evolving landscape of cryptocurrency, Ripple’s chief technology officer, David “JoelKatz” Schwartz, recently addressed concerns surrounding the disparity between Ripple’s extensive relationships with banks and the relatively low on-chain activity witnessed on the XRP Ledger (XRPL). On July 30, Schwartz engaged with investor and YouTuber Andrei Jikh, offering insights via a series of posts on X, adding clarity to the complexities of institutional participation in blockchain technology.
Understanding the Institutional Landscape
Jikh’s queries highlighted a pressing issue: despite boasting over 300 partnerships with banks, why does the XRPL not facilitate “billions in daily on-chain volume”? He inquired why users would prefer a volatile asset like XRP compared to the safer stablecoins, and whether bridge assets still hold significance in a market dominated by fiat-linked tokens. His concerns also extended to the strategies involved in tokenization and the reasons behind decisions made by major firms such as BlackRock regarding their blockchain choices.
Schwartz’s main response focused on the regulatory challenges faced by financial institutions, emphasizing that entities like Ripple cannot utilize the XRPL DEX for transactions without assurance against potential illicit activities: “Even Ripple can’t use the XRPL DEX for payments yet because we can’t be sure a terrorist won’t provide the liquidity for payment.” He noted that while the shift toward on-chain institutional flows is progressing, it is happening gradually as institutions begin to recognize the advantages provided by blockchain technology.
When questioned about counterparty risks on other Layer 1 solutions, Schwartz pointed out that decentralized exchanges typically lack visibility into their counterparties, compounding the challenges for regulated entities. He elaborated that these complexities often hinder the growth of compliant payment channels in open markets.
The introduction of “permissioned domains” was framed by Schwartz as a solution to balance the openness of the ledger with the necessary compliance for institutional participants. He explained that these domains would enable retail access, provided they can demonstrate compliance, thereby ensuring liquidity in both compliant and open environments remains robust.
The Role of XRP in Today’s Market
On the topic of XRP’s volatility, Schwartz contended that this attribute does not inherently disqualify it from being used in payments. He argued there are scenarios where volatility can be advantageous. A bridge currency indeed requires a stable inventory, which emphasizes the necessity of maintaining a liquid hub asset for convenience. Users may opt to hold a primary bridge currency to facilitate seamless transitions across different assets as needed.
As for the relevance of bridge assets in a market flooded with stablecoins, Schwartz acknowledged that while individual stablecoins could serve as bridges, he remains skeptical about a single stablecoin dominating due to their ties to specific fiat currencies and jurisdictions. This reality, according to Schwartz, creates an ongoing need for neutral bridge assets that can link diverse tokenized offerings.
When questioned about why established firms like BlackRock wouldn’t just create their own blockchain for tokenization, Schwartz highlighted the importance of interoperability in today’s interconnected world. He posed a rhetorical challenge, asking why Circle would also choose to operate USDC across various blockchains rather than restricting it to a proprietary network, underscoring the benefits of widespread acceptance and liquidity.
Schwartz also clarified the geopolitical considerations around XRPL, which he characterized as impartial infrastructure compared to Ripple’s targeted enterprise solutions. He asserted that XRPL’s architecture does not discriminate against any participant, though some Ripple products face regulatory constraints impacting their global reach.
In conclusion, Schwartz emphasized that XRP continues to play a vital role within Ripple’s payment ecosystem, even if much of its usage is not reflected on public ledgers. “While I don’t have exact figures,” he remarked, “XRP’s utility as a bridge in Ripple Payments overshadows that of other assets.” He concluded by reminding attendees that XRP holds a significant position within the framework of the XRP Ledger.
As the market evolves, XRP was trading at $3.13 at the time of reporting, indicative of ongoing interest in digital assets.
