Ripple CTO Explains Factors That Make XRP a Good Collateral

The post Ripple CTO Explains Factors That Make XRP a Good Collateral appeared first on Coinpedia Fintech News

Jimmy Vallee, managing director of Valhil Capital, has sparked a new debate about the XRP buyback idea, which has now led to the questioning of the practicality of utilizing XRP as collateral. Chief Technical Officer of Ripple David Schwartz has now reacted to these discussions.

In 2021, Vallee introduced the XRP buyback idea and it was predicated on the idea that XRP would eventually become the world’s reserve currency. On the basis of this assumption, Vallee claimed that governments should own substantial amounts of XRP, calling for the planned buyback.

On Thursday, Vallee brought forward a brand-new idea in which XRP holders would use their holdings as collateral for a bank that would be known as a “Folks’ Financial institution” rather than selling to the government.

However, Schwartz took to his Twitter handle and said that a company only repurchases its goods at redemption value when it is contractually required. The CTO was replying to claims made by rippleitin.nz.

“I ponder if anybody has instructed Jimmy that XRP has no worth to borrow or lend in opposition to. How are you going to use it as collateral?” the validator had questioned. 

Schwartz pointed out that shares are appropriate collateral for loans since they are liquid, and that the possibility of redemption would scarcely be considered. Schwartz cited XRP’s liquidity and transparent spot market value as factors that would make it an excellent collateral. Overcollateralized crypto-backed loans, as Schwartz noted, are already typical in decentralized finance (DeFi).

He said, “Factors that make XRP good collateral is its proven history of liquidity and reliable price discovery. The biggest negative of using XRP for collateral is its volatility which means you need either over-collateralization, other assurances of payment, or have to charge high rates.”