Today, Ripple made waves in the blockchain ecosystem as developers Aanchal Malhotra and Vito Tumas unveiled a groundbreaking proposal for a Native Lending Protocol on the XRP Ledger, seeking to push its DeFi limits. This means that the proposal is intended to transform the industry by providing direct access to borrowing and lending of digital assets by users thus doing away with unnecessary intermediaries while fostering financial inclusion, transparency, and efficiency.
The Ripple Lending Protocol: A Modular Approach
Among other things, it has a modular design at its core which helps in making it more flexible and reusable. It also introduces three key specifications: XLS-64d, XLS-65d, and XLS-66d, each having an important role in shaping the protocol’s functionality.
XLS-64d, known as Pseudo-Account, gives room for combining one pseudo-account with many ledger entries to make it easier to manage balances and issue tokens. Likewise, XLS-65d introduces an entirely new “Pool” ledger entry dedicated to a single tokenized asset pool. Lastly, XLS-66d continues from its predecessor by enabling Liquidity Providers’ assets management, bringing in off-chain underwriting on-chain agreements and loan management processes.
Evidently, Liquidity Providers put different kinds of fungible tokens into Lending Pool which is a moving system because it attracts interest while Pool Delegates watch over these pools obtaining capital and issuing loans. Negotiations regarding loan conditions between Borrowers and Pool Delegates are held outside the blockchain; however, they are recorded on it subsequently so as to bring about transparency and security.
Remarkably, the Lending Protocol enables fixed-term loans with preset interest rates, obviating the need for collateral through innovative risk management mechanisms and a first-loss capital protection scheme. Loans are meticulously managed through a dedicated ‘Loan’ ledger object, which handles all facets of loan transactions, from financing and withdrawals to payment schedules and default recovery.
In a bid to align incentives and mitigate risks, Pool Delegates have the power to offer first-loss capital as a result of which Liquidity Providers are shielded from default risks through a strong liquidation mechanism. For developers, the protocol’s modular architecture and extensibility offer an opportunity to create and integrate lending decentralized applications (dApps) on the XRPL, thus opening up countless use cases.
David Schwartz, also referred to as “Joel Katz,” and Ripple’s CTO, expressed his excitement about the proposal and stressed that it could bring new uses for the XRPL. Additionally, he points out that this lending protocol, together with native DEX, makes that infrastructure stronger because they are important pillars of it that provide more convenient financial services that are accessible as well as efficient and transparent. Now waiting for review and comments on the proposal by the community in eager anticipation of a new era in decentralized finance.
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