Why Ripple Is Launching a Stablecoin (2024)

Blockchain technology company Ripple said Thursday that it plans to launch a U.S. dollar-denominated stablecoin in an effort to bridge the gap between cryptocurrency and traditional finance and to generate more uses and liquidity for the XRP Ledger blockchain.

Ripple's new stablecoin will be issued on both the XRP Ledger and Ethereum networks at first, and the main goal is to drive more liquidity, developers, and users to XRP Ledger, which is the native blockchain of the digital asset XRP. It joins the growing stablecoin market, in which crypto tokens are pegged 1:1 to the U.S. dollar and are backed by U.S. dollar deposits, short-term U.S. Treasurys, and other cash equivalents.

The Ripple stablecoin is also expected to be launched on additional blockchains over time. “This is a natural step for Ripple to continue bridging the gap between traditional finance and crypto,” Ripple CEO Brad Garlinghouse said in a statement.

Ripple continues to deal with a lawsuit from the Securities and Exchange Commission (SEC) regarding the legal classification of XRP as a security.

DeFi Is Built on Stablecoins

As a massive holder of XRP, Ripple has an incentive to bring more financial activity to XRP Ledger. And it's no secret that the decentralized finance (DeFi) sector is mostly built on stablecoins on various blockchains.

For example, six of the top 10 trading pairs ranked by seven-day trading volume on the version of DeFi exchange Uniswap that exists on Ethereum involved at least one stablecoin as of Thursday. Additionally, three of the top five borrowed assets on the Ethereum version of open-source liquidity protocol Aave are stablecoins.

Wrapped Bitcoin, which is a token backed by Bitcoin that's held by digital asset custody provider BitGo in a manner similar to a stablecoin, is also a top asset used in these DeFi apps.

Way To Attract More Users to XRP Ledger

With so much concentration of DeFi activity in stablecoins, Ripple said it sees the issuance of its own stablecoin as a way to attract users to the XRP Ledger ecosystem.

“The XRP Ledger’s native capabilities, including a decentralized exchange and automated market maker, were built to utilize XRP as the bridge asset," Ripple President Monica Long said. "Bringing a trusted stablecoin onto XRPL will drive more adoption and development, contributing to a vibrant ecosystem.”

Tether (USDT) is the current juggernaut of the stablecoin market, with a total value of just over $106 billion in circulation on various blockchains as of Thursday, according to data from CoinMarketCap. The only other noteworthy stablecoin offering in terms of size is USD Coin, which had a total market cap of just under $33 billion as of Thursday afternoon.