XRPL Approaches Native Lending with XLS-65 and XLS-66
Two amendments, XLS-65 and XLS-66, are being voted on by XRPL validators. Once approved, they will introduce ways to provide on-ledger lending and borrowing directly on the XRPL. Currently, users must use smart contracts on other ledgers to provide these financial services.
XLS-65 will allow the creation of Single Asset Vaults. Users will be able to combine a single asset type and receive a claim representing their share of the vault. From a technical standpoint, Single Asset Vaults can be used to represent XRP, other issued tokens, and tokenized RWAs.
Once single-asset vaults are created, lending can be implemented using XLS-66. XLS-66 uses the vault framework to define terms and conditions of loans. These definitions and rules will govern repayment and default of loans.
Both XLS-65 and XLS-66 will enable developers to build other financial products and services on the XRPL.
Credit assessment would remain off-chain and be subject to the individual assessments of lenders and brokers.
Because liquidations of collateral are automatically processed on several decentralized finance (DeFi) platforms, XRPL’s credit-based financing is often compared to other DeFi platforms. XRPL, however, supports defined lending periods and credit-based financing.
The Lending Protocol incorporates cash-basis accounting and employs a defined-term approach to investing and lending. The protocol’s features, if implemented, have the potential to facilitate credit-based financing for the business and working capital markets.
The Lending Protocol includes features that support the following:
- Credit pools
- Risk management services
- Lending based on a party’s credentials
- Yield and principal separation
- Interfaces for lenders and borrowers
Risk management services may include putting a loan position on a secondary market.
Other improvements to the XRPL are being finalized and implemented in conjunction with the aforementioned lending improvements. These include changes to the XRPL to improve the management of user accounts and the processing of transactions.
PermissionDelegationV1_1 is being amended and could become activated on October 5, if it acquires sufficient support from validators. This amendment would enable a signing authority relationship, where the first account (the delegator) would be able to grant limited authority to the second account (the delegate) to sign messages on its behalf, without providing control to transfer that signing authority to another account.
Separating signing authority to complete payment transactions could be useful to capture work flows to illustrate compliance.
BatchV1_1 is planned to be activated on September 29, and is also proceeding through the amendment process. This will allow groups of transactions to be processed together and will enhance the transaction management functionalities offered by the XRP Ledger.
