Ripple Wants to Integrate CBDCs With DeFi

Ripple, the issuer of the sixth-largest cryptocurrency, XRP, said it’s seeking to integrate  Central Bank Digital Currency with DeFi primitives.

James Wallis, the vice president of central bank engagements and CBDCs at Ripple, said in an interview with Pymnts, that his firm is working on a project backed by the Hong Kong Monetary Authority to explore a CBDC-powered lending protocol supporting tokenized real estate as collateral.

“You see these different elements of web3 coming together,” Wallis said. “You’ve got the ability to tokenize your property, and then to actually take out loans against that using a DeFi lending protocol.” 

Central Bank Digital Currencies, or CBDCs, refer to digital monies issued by a central bank via a distributed ledger.Decentralization proponents criticize CBDC for benefiting the government with significant efficiency savings and vast financial surveillance capabilities without providing any of the benefits associated with distributed ledger technology (DLT) to citizens.

CBDC issuers retain total control over currencies issued, including the minting, distribution, redemption, and destruction of tokens.

CBDCs and DeFi

But Wallis paints a different story for the future of CBDCs, arguing that central bank money will become integrated with use cases popular in DeFi and web3. 

“The internet of value is going to have central bank money as part of it and we want to be a facilitator for that,” he said.”Wallis said Ripple received hundreds of applications, including some exploring “lending protocols [and] how you can leverage some of the DeFi aspects of [crypto],” for the company’s CBDC Innovate hackathon, kicking off on May 15.

Ripple's CBDC platform

Wallis’ remarks coincided with the public launch of Ripple’s CBDC Platform.

Ripple described the platform as a full-stack solution enabling central banks, governments, and financial institutions to launch a digital currency. The platform leverages the same blockchain technology underpinning the XRP Ledger to manage accounts and settle transactions.

Wallis said the platform focuses on enabling three core use cases for CBDC: settling cross-border transactions, facilitating domestic payments, and inter-bank settlement (sometimes referred to as “wholesale CBDC).

Ripple is already working with several governments on CBDC initiatives.

The Republic of Palau, a Micronesian archipelago home to a population of less than 20,000, has already signed up to use the platform. Surangel Whipps Jr, President of Palau, said the CBDC will provide his country’s citizens with “greater financial access.”

Ripple is also working with Montenegro on issuing national currency issued by its central bank that is pegged to the Euro.

Montenegro is currently applying for EU status and has officially used the Euro as its de facto currency since 2002.

Wallis said most governments turn to CBDCs for improved efficiency, particularly in the context of cross-border settlement.

“Without exception, every project that we’re involved in has cross-border payments as one of the top topics that they want to improve, whether that’s for remittance, trade-flow, [or] different reasons,” he said.

Wallis estimated more than 90% of countries worldwide are currently engaged in initiatives researching or developing CBDCs.