- XRPL’s proposed lending system has reached 22 supporting validators, short of the 29 needed for activation.
- The proposal offers fixed-term loans supported by off-chain credit assessment, not borrower collateral.
- It raises questions about how on-chain lending can manage risks tied to off-chain credit assessments.
The proposed XRP Ledger (XRPL) lending framework has reached 22 out of 35 trusted validator votes, gaining three votes since mid-October but remaining seven votes short of the 29-vote supermajority required to trigger its two-week activation countdown.
The amendment would offer fixed-term loans without the traditional borrower collateral, leaving users reliant on brokers’ off-chain credit evaluations, risk management and first-loss capital.
XRPL Proposed Lending Protocol Hits 22 Validator Votes
The XRP Ledger native lending framework moved forward this week after the XRP Ledger LendingProtocol amendment reached 22 votes from the network’s 35 trusted validators. The companion SingleAssetVault amendment, which creates the asset pools that fund loans, has 23 votes.
Meanwhile, a related patch, LendingProtocolV1_1, also has 22 votes. Activation requires more than 80% support, or 29 of the 35 validators on the default Unique Node List, maintained continuously for 14 days. As of now, LendingProtocol is seven votes short, while the SingleAssetVault is six votes short.
Why Are Loan Brokers, First-Loss Capital and Default Recovery Important?
The XRPL lending protocol addresses credit risk by employing loan brokers, first-loss capital, and a defined default process over automated overcollateralization typical of protocols like Aave. All three are interdependent and influence the extent to which the system can run securely.
Loan brokers are the main decision-makers about credit. They create the Single Asset Vault, conduct off-chain underwriting of borrowers, set all loan terms, originate loans on-ledger, and decide when to impair or default a position.
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In Aave core markets, there is no trusted underwriter to act between lenders and borrowers; instead, smart contracts impose overcollateralization and automatically liquidate positions when a position health factor falls below a threshold. On XRPL, depositors have to trust the judgment of the broker and continued diligence instead of that code-enforced collateral buffer.
Meanwhile, first-loss capital provides the main on-chain alignment of incentives. Brokers place the identical asset that’s held in the vault into a separate cover account. The protection of the depositors depends on CoverRateMinimum and CoverRateLiquidation.
When coverage is insufficient, the broker will not be able to give new loans, and the fees will be channeled to rebuild the buffer. In contrast, overcollateralized DeFi protocols are protected by capital from brokers, not by borrowers’ overposted collateral.
In addition, the default recovery is a sequence controlled by brokers. After a missed payment and the end of the grace period, the broker can mark the loan as defaulted. A portion of first-loss capital is then calculated and moved to vaults to offset a part of the loss, with the remaining shortfall amounting to a capital loss for depositors.
Can an On-Chain Lending Market Securely Support Off-Chain Credit Risk?
The XRPL Lending Protocol uses a hybrid model that combines on-chain loan processing with off-chain credit assessments. While the ledger manages loan creation, repayments, and first-loss capital transfers, brokers remain responsible for evaluating borrowers and managing credit risk.
This approach differs from overcollateralized DeFi markets such as Aave, where borrowers provide on-chain collateral that can be liquidated when their positions become undercollateralized. On XRPL, depositors instead rely on broker underwriting and available first-loss capital, which may only cover part of a default. Any remaining shortfall can reduce the value of assets held in the vault.
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Related: XRPL Set for Nov 4 Maintenance Fix as Native Lending Lacks Support
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