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.
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Crypto startup Ripple is the latest major player to enter the $150 billion stablecoin market with the launch of a digital currency pegged to the US dollar.
The stablecoin will still be backed 1-to-1 by an equivalent sum of assets – US dollar deposits, US government bonds and cash equivalents – that the company holds in reserve, according to Ripple.
The crypto company said its reserves would be reflected in publicly available monthly attestation reports. He did not specify which firm would conduct the audit.
Ripple is first launching its stablecoin in the United States, but is not ruling out offering additional regional products in non-US markets, such as Europe and Asia.
The move would pit Ripple against stablecoin giants like Tether, which is behind the largest stablecoin UDST, and USDC issuer Circle.
Payments giant PayPalmeanwhile, launched its own US dollar stablecoin called PayPal USD, a stablecoin backed by US dollars and dollar equivalents issued by crypto company Paxos.
But Ripple CEO Brad Garlinghouse said he was not deterred by the competition. “This market will be different (in the future), certainly depending on its size,” he told CNBC in an interview this week.
Why Ripple is launching a stablecoin
Garlinghouse said the company decided to introduce a stablecoin to the market last year in response to the “depegging” of rival companies Tether’s USDT token and Circle’s USDC.
USDT temporarily lost its peg at $1 in 2022 amid market instability resulting from the collapse of terraUSD, a popular so-called “algorithmic” stablecoin.
USDC also temporarily fell below $1 in 2023 after revealing its exposure to failed tech lender Silicon Valley Bank.
Some critics dispute the origin 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 distress.
Garlinghouse said there was “some uncertainty” about the current market leader among U.S. regulators, without disclosing his name. He argued that Ripple is a regulated institution with licenses in New York, Ireland and Singapore, among other countries.
Tether is the stablecoin market leader with a market capitalization of $106.3 billion, according to CoinGecko data. The company was not immediately available for comment.
Tether is registered with FinCEN, the US financial crime watchdog, which is not the same as being regulated. The business is required to submit suspicious transaction reports and reports for transactions totaling more than $10,000.
Don’t give up on XRP
A Ripple stablecoin would also serve a purpose that the crypto giant is touting 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 currency. bridge “.
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 finding that Ripple was not yet active in enough markets to meet its needs.
MoneyGram has ended 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 abandoned XRP as a payment token and that stablecoins would serve more as a complementary product for the XRP ecosystem.
“We have been using stablecoins in our payment flows for years,” he said. “This is nothing new 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 liquidity pools native to 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.”
XRP is up about 13% over the past 12 months, according to CoinGecko data, and is currently trading at around 57 cents.
SEC settlement expected in ‘millions’
In 2020, the United States Securities and Exchange Commission filed a lawsuit against Ripple, claiming the company illegally sold XRP to investors when it should have registered the transactions with the regulator.
A judge recently ruled that XRP was not itself a security, but said sales to institutions should be considered illegal sales of securities.
The blockchain company sold $728.9 million worth of its XRP token to hedge funds and other sophisticated buyers, according to the U.S. District Court for the Southern District of New York.
The SEC is seeking $2 billion from Ripple in its lawsuit.
Garlinghouse said what the SEC is asking is unreasonable because it only concerns the $728.9 million worth of XRP the company sold to institutions.
He expects the total settlement to be only a fraction of that amount, in the “millions,” rather than billions of dollars.
The SEC was not immediately available for comment.
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