Ripple Tests New Stablecoin Amid Legal Battles, A Dual Path of Innovation and Regulation

Ripple, the blockchain enterprise known for its close association with the XRP Ledger (XRP), announced on Friday that it has begun testing its U.S. dollar-pegged stablecoin, Ripple USD (RLUSD), on both the Ethereum (ETH) mainnet and the XRP Ledger. This move marks a significant step in Ripple’s strategy to enter the burgeoning $160 billion stablecoin market, which is currently dominated by heavyweights such as Tether’s USDT and Circle’s USDC.

According to Ripple’s blog post, RLUSD is in its beta phase and is undergoing rigorous testing by the company’s enterprise partners. “This phase is crucial for ensuring that the stablecoin meets the highest standards of security, efficiency, and reliability before it becomes widely available, and after receipt of regulatory approval,” Ripple stated.

RLUSD is designed to be backed by short-term U.S. Treasuries, dollar deposits, and cash equivalents. The company has also committed to transparency by planning to provide monthly attestations of its reserves, which will be audited by a third-party accounting firm. Despite the ambitious plans, Ripple emphasized that the stablecoin is not yet tradeable, as it still awaits regulatory approval.

Ripple’s foray into the stablecoin market comes at a time of rapid growth and increasing competition within the sector. Stablecoins have become a cornerstone of the crypto economy, facilitating trading and payments on blockchains. With the market expected to expand significantly—broker Bernstein forecasts a potential growth to $2.8 trillion by 2028—Ripple’s entry could position it as a key player in this evolving landscape.

However, Ripple’s innovation in the crypto space is not without its challenges. The company’s stablecoin launch announcement came just two days after a significant legal setback. On Wednesday, District Judge Analisa Torres of the Southern District of New York ordered Ripple to pay $125 million in civil penalties and imposed an injunction against future securities law violations. The penalties stem from 1,278 institutional sale transactions by Ripple that the court found to have violated securities laws.

The fine, although substantial, is notably less than the $1 billion in disgorgement and prejudgment interest, and $900 million in civil penalties that the U.S. Securities and Exchange Commission (SEC) had originally sought. The judge’s ruling follows her July 2023 decision, which determined that Ripple’s direct sale of XRP to institutional clients violated federal securities laws, though she also ruled that Ripple’s programmatic sales of XRP to retail clients through exchanges did not constitute securities violations.

Judge Torres’ order also includes an injunction prohibiting Ripple from future violations of federal securities laws. While she did not make a determination that Ripple had violated any laws beyond what was covered in the SEC’s lawsuit, she expressed concern over the company’s aggressive approach to regulatory boundaries. “On balance, the Court finds that there is a reasonable probability of future violations, meriting the issuance of an injunction,” Torres stated.

As Ripple pushes forward with its stablecoin project, the company must navigate a complex landscape of innovation and regulation as the spotlight is directly pointed at them. The launch of RLUSD could potentially reshape the stablecoin market, but Ripple’s ongoing legal battles highlight the challenges that come with pioneering in the rapidly evolving world of cryptocurrency.

Thomas Lin
Digital Assets Desk