As decentralized finance continues to mature, the focus is gradually shifting away from speculative yield toward structurally sound financial models that can survive market stress. On the XRP Ledger (XRPL), this challenge is even more pronounced.
Designed for speed, determinism, and large-scale value transfer, XRPL was never built to mirror Ethereum-style DeFi. Instead, lending on XRPL is evolving along a more disciplined, risk-aware path—one that aligns closely with traditional financial principles.
That framework was recently clarified by Vet, a respected XRPL validator and long-standing ecosystem contributor, who outlined how a lending protocol can function on XRP without compromising depositor safety or ledger integrity. His explanation offers a rare look into how yield generation on XRPL can be both sustainable and accountable.
Vault-Based Deposits and Asset Structure
The protocol begins with depositors placing XRP or XRPL-issued IOUs—such as Ripple’s RLUSD—into a vault. These assets remain transparently accounted for on the ledger, leveraging XRPL’s native support for trustlines and issued currencies.
Lending Protocol on XRP
1. Depositor put XRP or IOU like RLUSD into a vault.
2. Loan Broker gives out one or multiple XRP loans out to Borrowers
3. Borrowers pay interest to Loan Broker
4. Loan Broker puts collected interest into vault
5. Vault value increases -> Depositors… pic.twitter.com/DfYN4TObgx
— Vet (@Vet_X0) December 23, 2025
Rather than interacting directly with borrowers, depositors gain exposure to yield through the collective vault, simplifying risk distribution and asset management.
The Loan Broker as Intermediary
A central feature of the design is the Loan Broker. This entity draws liquidity from the vault and issues one or multiple XRP-denominated loans to borrowers. Borrowers repay these loans over time with interest, which is collected by the broker.
Crucially, the interest is not retained as profit alone; it is routed back into the vault, steadily increasing its value and generating yield for depositors. This intermediary-based structure mirrors conventional credit markets more closely than peer-to-peer DeFi, prioritizing credit assessment, borrower selection, and capital discipline.
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Buffer Mechanism and Default Protection
What truly distinguishes this model is how it handles default risk. Vet emphasized that the Loan Broker must provide a buffer—its own capital locked specifically to absorb losses. If a borrower defaults, losses are covered by this buffer first, shielding depositors from immediate harm. Only if defaults exceed the buffer would depositor funds be affected.
This requirement forces the broker to maintain “skin in the game,” aligning incentives and discouraging reckless lending. It also addresses one of DeFi’s most persistent weaknesses: risk being socialized while profits remain private.
Why This Model Fits XRPL’s Design Philosophy
The lending structure Vet described works within XRPL’s architectural constraints rather than against them. It avoids complex on-ledger smart contracts, preserves XRPL’s performance guarantees, and leverages its strengths in settlement, transparency, and asset issuance.
As the XRPL ecosystem expands—driven by stablecoins like RLUSD and broader institutional adoption—this approach demonstrates that DeFi on XRP is evolving with intention. Rather than chasing experimental yield, it is building financial infrastructure designed to last.
Disclaimer: This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses.
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