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“Interoperability Is Key”: Ripple’s Rahul Advani Discusses CBDCs, Regulation

2021 was the coming of age for crypto. But as we move past that inflection point, there is likely to be a more focused approach in 2022, with the spotlight being on real-world applications and tangible business outcomes, Rahul Advani, APAC Policy Director at Ripple, told Blockhead.

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Founded in 2012, Ripple is the only enterprise blockchain company today with products in commercial use, covering over 300 customers in 40+ countries. Its flagship solution is RippleNet, which leverages blockchain technology to enable faster, cheaper, and more transparent cross-border payments.

Advani is currently leading Ripple’s engagement and advocacy with policymakers in the APAC region to develop regulation that promotes responsible innovation in the digital assets space.

XRP, the native cryptocurrency on the XRP ledger, is the 7th largest cryptocurrency by market capitalisation and can be used by banks and payment providers to facilitate near-instant cross-border transactions. In March 2021, Ripple developed a CBDC private ledger for central banks to issue and distribute CBDCs. The company has already piloted a CBDC with Bhutan and is developing the world’s first sovereign-backed stablecoin for the Republic of Palau.

How will the hype around blockchain and cryptocurrencies play out this year?

Cross-border payments is one area where we feel crypto has compelling utility. Global corporations still incur about USD 120 billion in transaction costs for cross-border payments and Ripple was one of the first enterprise companies to leverage digital assets to tackle that challenge.

We also believe that NFTs will enable profitability and new business models, creating that tipping point for mainstream crypto adoption. Ripple launched a USD 250 million creator fund last year in collaboration with Mintable to support the building of NFTs on the XRP ledger.

How does Ripple plan to adapt to the growing demand for crypto-based cross-border settlements?

A big problem that RippleNet solves is in today’s banking system. There are considerable liquidity issues and a lot of capital is tied up in pre-funding. Ripple solves that problem by using a solution called On-Demand Liquidity (ODL).

Our customers can leverage the digital asset XRP as a neutral bridge asset between two currencies, which eliminates the need for pre-funding in destination accounts and substantially reduces their capital overheads and operational costs.

What are your thoughts on the development of CBDCs in the APAC countries?

I think it’s fairly clear that the APAC is leading by example across both retail and wholesale CBDCs.

Looking ahead, however, central banks will have to tackle the challenge of interoperability when it comes to cross-border payments. If each country is creating its own digital currency, then we’re just recreating the same siloed system that we have in place today, which means that countries are not going to be able to use each other’s CBDCs.

Therefore, interoperability to facilitate cross-border transactions is key here. And this is where neutral bridge assets like XRP, which is an open source, public and decentralised digital asset, can continue to play a role. So what we’re seeing for XRP in ODL – which acts as a neutral bridge between currencies – we see the same use case for CBDCs where ODL can be used as a neutral bridge between CBDCs.

How will regulation shape the progress towards mainstream cryptocurrency adoption in the APAC?

People tend to think of APAC as this monolithic whole. But the reality is that the region is just so diverse! There’s so many intertwining social, economic, and political challenges in each jurisdiction which will create unique complexities. I think we’re going to see uneven progress in APAC. Some countries are going to be taking the lead while others might take a bit more time. It’s a steep learning curve.

But as more traditional financial institutions join the conversation, it will encourage regulators and policymakers to think long term and lay down some clear rules of the road. That’s critical to enable innovation for the sector to mature.

Regulators are going to have to find a balanced middle ground. The frameworks will need to be innovative and flexible while also providing consumer safeguards. Over-regulation will suffocate innovation while under regulation carries its own risks. Failure to address money laundering, terrorist financing, fraud, and ransomware concerns will lead to losses for consumers, businesses, and investors as well. But we have a good example in Singapore where the MAS has taken a balanced approach to regulating crypto.

A lot of jurisdictions will be looking towards Singapore to see how it’s regulating the space and adapt that for local use.