How does the XRP Ledger's native lending protocol work?

The full answer

The Lending Protocol is a proposed XRP Ledger feature that XRPL.org describes as “on-chain, fixed-term, uncollateralized loans using pooled funds from a Single Asset Vault.”[1] Ripple says the protocol (XLS-65, XLS-66) is subject to validator approval.[8] It was not switched on as of September 29, 2026. Current vote counts and what activation needs are on is native lending live on the XRP Ledger yet.

Who does what in a loan?

XRPL.org names three roles. “Loan Brokers: Create asset vaults and manage associated loans.” “Depositors: Add assets to vaults.” “Borrowers: Receive loans, making repayments as defined by their loan terms.”[1]

The vault is the pool. XRPL.org describes a Single Asset Vault as a primitive “that aggregates assets from multiple depositors and makes them available to other on-chain protocols, such as the Lending Protocol.” It adds: “A vault asset can be XRP, a trust line token, or an MPT (Multi-Purpose Token).” Depositors receive shares, and “Each share is represented on-chain as an MPT, issued by the vault’s pseudo-account.”[5]

Each loan is its own ledger record. XRPL.org says a Loan entry “defines the state of an on-chain loan agreement between a Loan Broker and a Borrower.” Its fields include the principal still owed, “The annualized interest rate of the loan,” the number of seconds between payments, the payments remaining and a grace period.[4]

The credit decision happens off the ledger. XRPL.org says the protocol “relies on off-chain underwriting and risk management to assess the creditworthiness of borrowers” and “doesn’t include automated on-chain collateral and liquidation management, instead focusing on on-chain credit origination.”[1]

What problem is it meant to solve?

Ripple’s June 29, 2026 post frames it with two questions: “How does a payment provider bridge liquidity between settlement windows?” and “How does a market maker finance inventory without selling assets?” Its example is a payment provider holding RLUSD whose “cross-border settlement won’t close for another 48 hours.”[8] XRPL Commons adds two more uses: letting “treasury teams” put idle digital assets into “underwritten facilities,” and letting lenders “build structured credit products on top of a common infrastructure layer.”[9] These are the builders’ stated aims, not results.

Who absorbs losses when a borrower defaults, and in what order?

The broker can put its own money in first. XRPL.org says: “First-loss capital is an optional mechanism to mitigate the risks associated with lending.” It “acts as a buffer in the event of loan defaults, moving assets from the pseudo-account to the single asset vault to cover losses.” If cover drops below the broker’s set minimum, “The loan broker can’t issue new loans.”[1]

Two settings on the broker’s ledger record decide how much. CoverRateMinimum is the share of the broker’s outstanding debt “that the first-loss capital must cover.” CoverRateLiquidation is the share “of minimum required first-loss capital that is moved to an asset vault to cover a loan default.” Both can range from 0% to 100%.[2] RippleX described the same step in January 2025: on default, “a portion of this capital is liquidated based on the minimum required cover, and the proceeds are returned to the Vault to cover some losses.”[7] Ripple’s 2026 post puts it as “Pool administrators or underwriters put junior capital at risk ahead of senior liquidity providers.”[8]

The timing is fixed by rule. XRPL.org says a loan “can’t be marked as defaulted or impaired before its payment due date and grace period have passed,” a rule it lists as requiring the fixCleanup3_4_0 amendment.[3]

This page reads the sequence this way: after the first-loss money that is moved into the vault, any remaining loss falls on vault depositors through the value of their shares. The documents read state each step but not the whole order in one sentence. XRPL.org notes that vaults use “separate exchange rates for deposits and redemptions”.[5]

What loan data is visible on-ledger and what stays with the broker?

On the ledger: each loan’s borrower, broker, outstanding principal, rate, payment schedule, grace period and fees.[4] XRPL.org’s use-case page says “All credential and loan info is transparent on the XRPL.”[6] With the broker: underwriting, meaning the assessment of a borrower’s creditworthiness, and collateral management, which XRPL.org and XRPL Commons both say stay off-chain. XRPL Commons says “Underwriting and collateral management stay off-chain, with the teams that already hold the policies, the regulatory obligations, and the accountability for a credit decision.”[9] The Loan record as documented has no collateral field.[4]

One party describes this differently. In remarks filed with the SEC on March 27, 2026, Evernorth said XLS-66 is “where the ledger becomes the contract. Things like repayment schedules, interest, collateral are all enforced natively at the protocol level.”[17] XRPL.org’s own documentation says the current version has no automated on-chain collateral management.[1] This page follows XRPL.org.

Could an individual XRP holder deposit into a vault?

It depends on the vault. XRPL.org says: “In a public vault, anyone can deposit or redeem liquidity as long as they hold sufficient shares.” A private vault allows “only depositors with the necessary Credentials, managed through Permissioned Domains.” A depositor whose credentials lapse “can always redeem their existing shares.”[5] The use-case page describes brokers defining a permissioned domain so “only accounts that meet KYB (Know Your Business) compliance requirements can deposit into the vault.”[6] Know-your-business checks point at firms rather than individuals. How credentials and permissioned domains work is on XRP Ledger compliance features for institutions.

How does it differ from Ethereum-style DeFi lending?

Most Ethereum lending apps rely on collateral and automatic sales. Aave says “A liquidation in the Aave Protocol occurs when a borrower’s health factor falls below 1, indicating that their collateral no longer sufficiently covers the borrowed amount.”[13] The Bank for International Settlements wrote in 2022 that “overcollateralisation is pervasive in DeFi lending, which generates procyclicality.”[14]

The XRP Ledger design leaves out on-chain collateral and liquidation and moves the credit decision to the broker.[1] Ripple says “Most onchain lending systems have conflated the two by building underwriting assumptions directly into protocol logic.”[8] XRPL.org’s LoanBroker entry lists a management fee rate of 0% to 10%, described as the fee charged by the lending protocol on any loan interest.[2]

How does it compare with existing undercollateralised on-chain credit protocols?

Lending without collateral on-chain is not new, and it has produced losses. In December 2022, The Block reported that Orthogonal Trading had defaulted on eight loans totalling $36 million on the lending protocol Maple Finance, and that Maple said the firm had misrepresented its exposure.[15] In October 2023, CoinDesk reported that “A tokenized loan worth $20 million soured in a lending pool on decentralized lending platform Goldfinch,” with “some $7 million of the $20m funds” at risk.[16]

In this page’s reading, both failures came from the borrower’s side, which is the part the XRP Ledger design leaves to off-chain underwriting. First-loss capital narrows the loss to depositors but only by the amount the broker has posted. The rules brokers and lenders would face are on what rules govern lending against XRP.

What changed in September 2026?

On September 16, 2026, XRPL.org released xrpld 3.4.0 with a LendingProtocolV1_1 amendment. It “Extends the LendingProtocol and SingleAssetVault amendments with a new closed-ended vault and cash-basis accounting.” Closed-ended vaults run through “subscription, investment, and redemption” phases, and cash-basis accounting changes “vault accounting to only realize interest as income when payments are actually made.”[12]

Voting is the gate. Amendments “generally need more than 80% support from validators for two continuous weeks,” The Crypto Times wrote on September 24, 2026.[11] Ripple’s June post says developers “can begin integrating and testing on devnet today.”[8] Whether XRP credit can grow without this feature is covered on does XRP credit depend on native XRPL lending.