Ripple has launched a new feature to make its XRP Ledger more appealing to banks and other financial institutions. The problem? These institutions are often hesitant to use decentralized exchanges (DEXs) because of regulations like KYC (Know Your Customer) and AML (Anti-Money Laundering).
Solving the Regulatory Hurdle
Ripple’s solution is a “permissioned DEX” built directly into the XRP Ledger. This means compliance checks are built into the system itself, not added on later. This is achieved through two new standards:
- Credentials: Think of this as a digital certificate proving a wallet has passed KYC/AML checks. A trusted third party issues these certificates.
- Permissioned Domains: These let operators set rules for who can trade within a specific area of the DEX. Only wallets with the right credentials can participate.
The beauty of this system is that it’s all handled automatically by the XRP Ledger. No extra contracts or fees are needed. Orders without the proper credentials are simply ignored.
How it Works: A Simple Example
Imagine three people:
- Bob: Runs a Permissioned Domain, requiring KYC credentials to trade.
- Alice: Has the required credential and can trade freely in Bob’s domain.
- Charles: An arbitrageur who gets the credential and can trade in both Bob’s domain and the open market, keeping the two separate.
This ensures that only verified users trade within the permissioned area, while the open market remains accessible to everyone.
Benefits for Businesses
Ripple highlights several use cases for businesses:
- FX Swaps: Easily exchange currencies across borders with guaranteed compliance.
- Payroll: Process payments to contractors in emerging markets securely.
- Internal Treasury Management: Manage fiat, crypto, and tokenized assets within a compliant environment.
The key benefit? Businesses no longer need complex legal agreements or separate whitelists. The XRP Ledger handles the compliance automatically.
Decentralization Remains Intact
Ripple emphasizes that this new system doesn’t compromise the decentralized nature of the XRP Ledger. Participation in permissioned domains is voluntary, and the system requires validator approval. If approved, the permissioned DEX could be live by mid-July.
The Bigger Picture
This permissioned DEX is part of Ripple’s broader plan to make the XRP Ledger more compliant. They believe this offers institutions the best of both worlds: the speed and efficiency of a DEX with the regulatory certainty they need.
