Ripple: Federated Sidechain, DeFi and Smart Contracts Are Coming Soon
Global payment giant, Ripple has confirmed that federated sidechains are indeed coming. The implementation will vastly increase the use cases of the XRP Ledger, including DeFi, NFT, and smart contract capabilities.
“Among the most-requested features we have heard from developers and contributors to the XRP Ledger is smart contract capabilities brought about by the exponential growth in decentralized finance (DeFi). In fact, the number of DeFi developers has grown 110% since 2019, and that number is projected to grow well beyond 2021. However, we at Ripple have long advocated against features that would compromise the XRP Ledger’s highly efficient focus on payments.“
While the payment giant confirms cross-border payments remain its “bread and butter,” federated sidechains will open up a number of new possibilities for Ripple going into the future.
There has been increasing speculation that Ripple has its eye on a bigger game. Namely, using sidechains to capture the central bank digital currency (CBDC) market.
Ripple CTO explains the importance of sidechains
Ripple CTO David Schwartz explained federated sidechains in a recent interview with YouTube channel Thinking Crypto:
“The general idea is to enhance the utility of the XRP Ledger by essentially having additional ledgers that sort of, literally, sit to the side of it.”
The idea behind the concept is to separate functionality over different chains. That way, the mainchain, which is used for payments in Ripple’s case, remains quick and cheap to use.
“If you try to put everything on a single chain, what happens is the chain gets slow and it gets expensive, and it degrades the ability of people to use it for simple payments.”
Schwartz said they could have built smart contracts etc., into the mainchain. But neither he nor the XRP community would have accepted that because being “the best digital asset for payments” really matters.
Ripple and CBDC?
Ripple announced a pilot project for CBDCs earlier in March of this year. The project is based on the XRP Ledger, which has over eight years of history as a reliable, secure, and highly scalable payment system.
However, servicing central banks, it would also offers transaction privacy and more control than a standard public ledger.
Another interesting aspect is the interoperability. According tov Ripple these private ledgers are able to connect with existing legacy infrastructure, as well as with each other.
This would open up an intriguing prospect when thinking about cross-border settlements occurring on the same network via sidechains.
“We are also working on a fresh approach where Central Banks will be able to join a network of CBDC Ledgers that enables full settlement interoperability, while allowing each member to retain their monetary and technological independence.”
While CBDCs were not mentioned in today’s announcement, for many its pretty obvious.
