Ripple takes a rather interesting stand on stablecoins – The future of finance report

Ripple, the company behind digital currencies XRP and RLUSD, is urging financial regulators not to sacrifice the “global fungibility” of stablecoins over most consumer protection laws, as it will undermine the benefits of blockchain technology. 

In a January 30 finance report, the Ripple-USD (RLUSD) issuer called stablecoins the “heart of the new digital financial system,” because they offer institutions and individuals a way to make cross border payments at little costs. However, the blog listed some ways in which regulators have made it a tall order for these assets to work effectively.

Regulations could hinder stablecoin issuers from providing services

Ripple cited the Markets in Crypto-Assets (MiCA) regulation, which had its rules take effect on December 30. According to MiCA laws, stablecoin issuers must be authorized by a locally regulated entity within the European Union (EU) before offering or listing their stablecoins, meaning they need to be issued by a locally regulated entity to comply with the legislation.

MiCA is officially live! 🇪🇺

After years of consultation, heated debates, contemplated bitcoin bans, last-minute amendments, and countless votes, MiCA now (actually since Dec 30 2024) officially applies to crypto-asset issuers and service providers in the EU – even if the latter… pic.twitter.com/3ZTH0KjkIC

— Patrick Hansen (@paddi_hansen) January 2, 2025

These requirements, according to the company, stem from regulators’ desire to prevent disruption to services and losses to users in the event that an issuer faces operational hiccups in a foreign jurisdiction. 

While this regulatory framework is designed to protect domestic financial ecosystems, Ripple argues that it might inadvertently undermine the core benefits of blockchain technology. The report explained that one of the biggest advantages of blockchain technology is its borderless nature, much like the internet itself.

Stablecoins are globally fungible and can be transferred between market participants, allowing value to be delivered anywhere in the world quickly and at low cost.  This is more than just a feature of stablecoins; it is fundamental to their value.

– Ripple

The insight went on to say that when stablecoins are required to be issued locally, the redemption process may become more complicated. Legal claims for redemption could shift between entities as transactions move across borders, and backing reserves may need to flow to local entities to meet redemption demands. 

The complexity and bureaucracy of this process could unintentionally quash the efficiency of stablecoins in cross-border transactions. 

Additionally, stablecoin issuers, who often do not have a direct relationship with end-users, would face a greater operational burden, as they would need to rely on exchange partners to confirm the location of users. This might not always be feasible, especially in decentralized systems where users are typically next to impossible to trace.

Ripple: Support a variety of stablecoins to promote innovation

Ripple is calling for financial watchdogs under different jurisdictions to allow a variety of stablecoins, including those issued overseas, to circulate freely. It believes that by increasing the range of available stablecoins, users will have more options to turn to where other networks are facing downtimes or compliance issues. 

To support its proposal, the report gave an example of Singapore, where overseas-issued stablecoins are regulated as digital payment tokens (DPTs) under the Payment Services Act, 2019. 

Unlike single-currency stablecoins, which face more stringent regulations regarding value stability and redemption, Singapore’s DPT applies minimum standards for Anti-Money Laundering (AML), anti-terrorism finance obligations, and consumer protections to enable overseas stablecoins to function as a payment method in accordance with the law.

Moreover, in cases where local issuance is non-negotiable, Ripple stresses that regulators should adopt an auditing rule to ensure that the entity is capable of meeting redemption requests under various scenarios, including during times of financial stress. 

In such cases, financial authorities should consider the issuer’s global resources and reserves, including buffers that could help support redemption requests across borders.