Ripple developers Aanchal Malhotra and Vito Tumas have introduced a ground-breaking proposal for a native lending protocol on the XRP Ledger (XRPL). If passed, this proposal is expected to expand the network’s decentralized finance (DeFi) capabilities and increase XRP’s utility.

Ripple’s development arm, RippleX, elaborated in an X (formerly Twitter) post that the lending protocol will allow users to borrow and lend digital assets peer-to-peer (p2p) without the need for “unnecessary intermediaries.” The protocol will utilize a modular design that focuses on “flexibility and reusability.”

Furthermore, the modular design will introduce three specifications. The first is the XLS-64d, which will allow a single pseudo-account to be associated with “multiple ledger entries for tracking balances and issuing tokens.” The second is the XLS-65d, which “defines a new ‘Pool’ ledger entry for a single tokenized asset pool. 

XLS-66d is the third specification and will leverage the XLS-65d to manage the assets of Liquidity Providers (LPs). “It also introduces off-chain underwriting, on-chain agreements, and loan management.” RippleX further revealed. Regarding how the lending protocol will operate, LPs will deposit their crypto assets into a lending pool to earn interest. 

These lending pools will be managed by ‘Pool Delegates, ’ who will be charged with attracting capital from prospective lenders and providing loans to the borrowers. Pool Delegates will also be responsible for agreeing with the borrowers on the loan terms. This will be done off-chain, after which the agreement will be recorded on-chain. 

The proposed lending protocol will focus on fixed-term loans and will operate based on the pre-set terms regarding interest between the Pool Delegate and borrower. Interestingly, the need for collateral is eliminated due to the off-chain underwriting and risk management that the XLS-66d introduces. 

There will also be a first-loss protection scheme for lenders in case a default occurs. Pool Delegates can provide the first-loss capital to cover any potential default. Meanwhile, these loans will be managed through “a new ‘Loan’ ledger object.” 

The object will handle loan financing and withdrawals, payment amounts and schedules, and interest and principal payments. In the event of a default, the Loan ledger object will also handle this and spearhead the loan recovery. 

This development is undoubtedly bullish for the XRP ecosystem and could positively impact XRP’s price in the long run. It also adds to the several other bullish developments that have sprung up from the ecosystem lately. These include the proposed launch of a stablecoin on the XRPL and the newly launched Automated Market Maker (AMM). 

At the time of writing, XRP is trading at around $0.49, up over 1% in the last 24 hours according to data from CoinMarketCap. 

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