Ripple Can Freeze RLUSD On Ethereum and XRP Ledger If This Happens

The regulation of stablecoins has become a significant point of discussion in the cryptocurrency space, particularly with the introduction of the Genius Act, which mandates that issuers of payment stablecoins possess the “technological capability to comply with the terms of any lawful order.” This requirement extends to the ability to freeze, burn, or prevent the transfer of stablecoins as stipulated by the Act.

A recent discussion on X between legal expert Jeremy Hogan, blockchain researcher Vet, and Ripple CTO David Schwartz shed light on how these regulatory expectations align with RLUSD , Ripple’s recently introduced stablecoin. The conversation also clarified Ripple’s reasoning behind implementing freeze and clawback functionalities for RLUSD, raising questions about whether the legislation was tailored with RLUSD in mind.

The Freezing and Clawback Mechanism of RLUSD

Hogan initially posed an important question :

“Can Ripple or Circle actually freeze RLUSD or USDC once it’s transferred? I didn’t think that was possible, for either.”

Vet responded with a direct confirmation, explaining that RLUSD can be frozen and clawbacked on both Ethereum and the XRP Ledger (XRPL). According to him, Ripple, as the issuer, can freeze or reclaim RLUSD if requested by law enforcement or through court orders. This aligns with the regulatory requirements outlined in the Genius Act, reinforcing the need for issuers to retain control over their stablecoins in compliance with legal obligations.

The discussion further revealed that Ripple’s decision to enable clawback functionality had initially delayed the introduction of the RLUSD AMM (Automated Market Maker) pool on the XRPL due to an amendment. However, in light of the regulatory landscape, this move appears to have been a strategic and necessary step.

Understanding Clawback and Its Necessity

Vet’s exchange with David Schwartz provided deeper insights into why Ripple integrated clawback in addition to freeze for RLUSD. The debate was triggered when a user, Cookie, asked : “Why is clawback needed on a stablecoin?”

Vet responded by stating that clawback is not necessarily required for stablecoins. He noted that other issuers, such as Circle and Tether, implemented blocklisting of accounts, which serves a similar function to freezing. However, he acknowledged that Ripple included clawback as an additional safeguard.

David Schwartz then offered a more detailed rationale :

“A stablecoin held by a regulated legal entity is supposed to represent a legal obligation. If something outside the ledger eliminates the legal obligation but the tokens are still there on the ledger, the ledger’s just wrong. There needs to be a way to fix it.”

His explanation highlights the fundamental challenge that stablecoins present within a decentralized ledger system. Unlike traditional assets, stablecoins represent real-world financial obligations that can be altered by legal events. If a dispute, fraud case, or regulatory intervention dictates that the issuer no longer has an obligation to a particular holder, the on-chain representation must be corrected accordingly.

The Issue with Frozen Trustlines

Schwartz further clarified the distinction between freezing and clawback, particularly in cases involving legal disputes. He provided an example:

“Say there’s a dispute between Alice and Bill, and the issuer doesn’t know who the tokens rightfully belong to. So they freeze the trustline. At this point, they don’t know to whom they owe the dollars those tokens represent. But they owe them to someone. So a frozen trustline can’t mean no legal obligation.”

This illustrates a key limitation of freeze-only mechanisms. If Alice’s tokens are frozen but Bob later obtains a court order proving he is the rightful owner, the issuer must settle that obligation with Bob. However, if clawback is not available, the frozen tokens remain on Alice’s account—even though legally, she no longer owns them.

By implementing both freeze and clawback, Ripple ensures that RLUSD accurately reflects the issuer’s obligations at all times. This prevents situations where an issuer could misrepresent its financial position by pointing to frozen tokens as an excuse for non-compliance.

Does the Genius Act Specifically Target RLUSD?

Hogan’s final remark summed up the implications of the discussion:

“It’s almost as though this legislation was written with RLUSD in mind.”

While the Genius Act applies to all stablecoin issuers, its requirement that issuers can freeze, burn, and prevent transfers aligns seamlessly with the functionality built into RLUSD. This raises the question of whether Ripple anticipated such regulatory developments and proactively positioned its stablecoin to comply.

Given the increasing scrutiny from regulators, RLUSD’s compliance capabilities could give Ripple a strategic advantage, making it more attractive to financial institutions and regulatory bodies. By incorporating clawback and freeze functionalities, Ripple not only meets the requirements of the Genius Act but also enhances legal clarity and issuer control over its stablecoin.

The ability to freeze and clawback RLUSD on Ethereum and the XRP Ledger positions Ripple as a compliant and forward-thinking stablecoin issuer. This functionality ensures that RLUSD remains a true representation of legal obligations, allowing Ripple to respond to regulatory requirements efficiently.

With lawmakers increasingly demanding oversight in the stablecoin space, the Genius Act’s provisions align with Ripple’s approach, suggesting that regulatory clarity is shaping the next phase of stablecoin adoption. While some may see these controls as a departure from decentralization, they reflect a growing reality: stablecoins are bridging the gap between traditional finance and blockchain, and regulatory compliance is now a key factor in their design and adoption.

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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