Ripple begins work on a cross-border network for digital assets

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Having already tackled cross-border transfers through its blockchain technology, Ripple is setting out to make its mark on dozens of digital currency projects by finding a way to let them work with one another. 

To this end, Ripple recently released CBDC Platform, a product that enables central banks, governments and financial institutions to issue their own central bank digital currencies and stablecoins. 

Ripple already uses the distributed ledger technology that supports the XRP token to enable international payments for e-commerce. This new initiative attempts to replicate that success as a catalyst for CBDCs and stablecoins, placing Ripple alongside the U.S. card networks in the race to make different digital assets interoperable. 

CBDC Platform is designed to address digital currency use cases for consumers and banks on a private or public ledger. The Platform includes the ledger technology; issuer capabilities for minting and distribution, redemption and destruction of tokens and settlement and support for digital wallets. The CBDC Platform's capabilities are primarily designed to meet the needs of regulated institutions such as commercial and central banks. 

"As more and more central banks explore the development of a CBDC or stablecoin, we'll more broadly help address key use cases for wholesale and retail CBDCs with interoperability in mind," said Joe Vollono, director of business development for CBDC at Ripple. Wholesale CBDCs are designed for large entities, such as banks, that are moving large sums across borders. Wholesale CBDCs are considered simpler than retail CBDCs, which are designed for consumers. 

The release of CBDC Platform follows Ripple's acquisition of Metaco, a Switzerland-based cryptocurrency-custody firm, for $250 million. That deal gave Ripple access to Metaco's ability to store, issue and settle different tokenized assets, while Metaco's technology reaches significantly more users. Ripple is already working with several regions on CBDC pilots, including Montenegro, the European Union, Palau and Bhutan, among others. 

"It's the core technology behind widening financial inclusion, modernizing monetary policy, improving payment security and increasing cross-border payments efficiency," Vollono said.

Ripple's years of experience in enabling cross-border payments via its RippleNet product will inform how it works with central bank partners on cross-border CBDC payment systems, according to Vollono. Ripple's blockchain technology has drawn myriad businesses and other parties that sell internationally by enabling transactions to process without relying on correspondent banks to manage foreign currency exchange and other processing steps. 

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The RippleNet enterprise blockchain product is live in more than 70 countries, and is based on the ISO 20022 messaging standards that were developed to streamline international digital payments.

"RippleNet has evolved into a platform for cross-border payments with crypto-native services such as instant settlement, line of credit and liquidity services on top," Vollono said. "The CBDC Platform is a continuation of this."

While there are numerous CBDC projects underway or under consideration globally, these projects exist largely in isolation with most current transactions occurring inside borders. There are no established legal or standardized mechanisms for the exchange of CBDCs between countries or central banks, said Pavlov Sidelov, founder and chief technology officer at SDK.finance.

"In other words, there is no official framework in place that governs the cross-border transactions involving CBDCs," Sidelov said, adding the use of CBDCs in everyday user transactions or the retail sector is still in its early stages and is considered experimental.

Interoperability is also a work in progress for stablecoins, which are a form of cryptocurrency that aims to mitigate market volatility by backing the stablecoin with traditional currency. There are more stablecoins currently in circulation, which could provide a head start, according to Avivah Litan, a vice president and analyst at Gartner. 

"Stablecoins backed by traditional currency are already there and exist today," Litan said. "So why not just use stablecoins that are backed by a currency?" 

Litan said she is more optimistic about the technology that underpins CBDCs than the actual  digital currencies. 

"It is getting easier to onboard people for blockchain use cases. And there are new protocols like LayerZero that make it easier to move from one blockchain to another," Litan said. LayerZero is a protocol that supports messaging between different distributed ledgers or blockchains, making it easier to execute cross-chain transactions.    

There are discussions and projects that aim to create a global CBDC market, including use cases for retail CBDCs, Sidelov said.

Visa's Universal Payment Channel concept, for example, is particularly significant in the context of the current lack of mechanisms for exchanging CBDCs internationally, Sidelov said.

Visa's UPC is a network of blockchain networks, designed to enable digital currency payments both on and off of the Visa network. Both Visa and Mastercard are approaching governments on how the card companies' networks and scale could contribute to international CBDC projects. Visa recently announced it is working with Brazil's central bank to enable CBDCs to be used to broaden sources of investment for the country's small farms. 

"By providing a secure and seamless means of transferring digital currencies, the UPC acts as a 'universal adapter' among different blockchains, facilitating the exchange of value for central banks, businesses and consumers, regardless of the specific form factor of the currency involved, which looks like a potential solution to the issue of cross-chain interoperability," Sidelov said.