In 2020, the US SEC accused Ripple and its co-founders of violating securities laws by selling its native cryptocurrency XRP without first registering with the SEC.
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Crypto startup Ripple is the latest major player to enter the $150 billion stablecoin market, launching a digital currency pegged to the U.S. dollar.
Ripple said the stablecoin will always be backed on a 1-to-1 ratio by assets of equal value held by the company (USD deposits, U.S. government bonds and cash equivalents).
The cryptocurrency company said its reserves will be included in public monthly certification reports. It did not say which company would conduct the audit.
Ripple is launching its stablecoin in the United States first, but has not ruled out offering other regional products in non-U.S. markets such as Europe and Asia.
The move would put Ripple in competition with stablecoin giants such as Tether, the company behind Circle, the largest issuer of stablecoins USDT and USDC.
payment giant PaypalAt the same time, it launched its own U.S. dollar stablecoin called PayPal USD, a stablecoin backed by the U.S. dollar and U.S. dollar equivalents issued by crypto company Paxos.
But Ripple CEO Brad Garlinghouse said he is not intimidated by competition. “This market is going to be different (in the future), depending on the size of course,” he told CNBC this week.
Why Ripple is launching a stablecoin
Garlinghouse said the company decided to launch a stablecoin to the market last year in response to the “decoupling” of rival company Tether’s USDT token and Circle’s USDC.
In 2022, USDT temporarily lost its peg to $1 due to market instability caused by the collapse of terraUSD, a popular so-called “algorithmic” stablecoin.
USDC also temporarily fell below $1 in 2023 after revealing its exposure to failed technology bank Silicon Valley Bank.
Some critics have questioned the source of Tether’s reserves and doubted whether the company has enough capital to withstand a “bank run”.
In the case of Tether, its token is fully backed by high-quality reserves and has always been able to meet withdrawal requests even in difficult times.
Garlinghouse said there was “some uncertainty” among U.S. regulators about the current market leaders, without naming names. He believes that Ripple is a regulated institution, with licenses in countries such as New York, Ireland and Singapore.
Tether is the market leader in stablecoins, with a market capitalization of $106.3 billion, according to CoinGecko. The company could not immediately be reached for comment.
Tether is registered with FinCEN, the US financial crimes regulator, which does not mean it is regulated. Businesses are required to file suspicious transaction reports and transactions totaling more than $10,000.
Not giving up XRP
The Ripple stablecoin will also serve the crypto giant’s purpose as part of its on-demand liquidity product, which aims to use the XRP token as a “bridge” currency to quickly settle transactions between banks and other financial companies.
Ripple has encountered obstacles in finding Ripple use cases for banks and payment companies.
Santander initially wanted to use XRP for cross-border payments, but decided not to do so after discovering that Ripple was not yet active in enough markets to meet its needs.
MoneyGram has terminated its partnership to use XRP for cross-border transfers due to increased costs resulting from the need to partner with exchanges and other necessary counterparties in local markets.
Garlinghouse insisted that Ripple has not abandoned XRP as a payment token and that the stablecoin will serve more as a complementary product to the XRP ecosystem.
“We have been using stablecoins in our payment process for many years,” he said. “This is nothing new to us.”
He added that other so-called “layer one” protocols — blockchain networks with their own tokens — have launched stablecoins and seen growth in overall volume and liquidity.
“Our view is that having liquidity pools native to the XRP ledger, they can complement and help grow the XRP ecosystem,” Garlinghouse told CNBC. “In fact, the first request we received from the XRP community was on XRP USD-backed stablecoin launched on Ledger.”
XRP has gained about 13% in the past 12 months and is currently trading at about 57 cents, according to CoinGecko data.
SEC expected to settle for “millions”
In 2020, the U.S. Securities and Exchange Commission filed a lawsuit against Ripple, claiming that the company illegally sold XRP to investors when it should have registered the transaction with the regulator.
A court judge recently ruled that XRP itself is not a security, but said sales to institutions should be considered illegal securities sales.
The blockchain company sold $728.9 million worth of XRP tokens to hedge funds and other sophisticated buyers, according to the U.S. District Court for the Southern District of New York.
As part of the lawsuit, the U.S. Securities and Exchange Commission (SEC) is seeking $2 billion in damages from Ripple.
Garlinghouse said the SEC’s request was unreasonable because it only related to the company’s $728.9 million in XRP sales to institutions.
He expects the total settlement to be a fraction of “millions” of dollars, not billions.
The SEC could not immediately be reached for comment.
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