FXRP allows XRP to be used in DApps, DeFi solutions and NFTs, will XRP rise?
Although everyone has been controversial about Ripple, the development of Ripple's global payment network has indeed achieved a certain degree of success. Their blockchain payment solutions are supported and used by more than 200 institutional partners, which has also led to the continuous rise in the price of XRP coins. Next, Ripple will soon launch a new Flare network, which is expected to bring more positive news to the company.
The Flare network is expected to provide new features for XRP, such as smart contract support and applications to non-fungible tokens (Non-fungible tokens, NFT), decentralized financial (DeFi) solutions and thousands of Ethereum dApps (Decentralized Apps, decentralized applications).
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Introduction to Ripple
Before we officially enter the topic, let us review the background information of Ripple together.
Ripple is a global payment network and foreign exchange system that utilizes its native XRP coin and XRP Ledger (XRPL) blockchain platform to enable fast and low-cost payments between users. In addition to serving individual users, the project also has an institutional-focused product called RippleNet, which allows banks, payment companies and other businesses to conduct instant and low-cost transactions globally.
Ripple's efficient payment network success also includes partnerships with key market players in the financial industry, including American Express, Santander and SBI Remit. While Ripple can achieve high scalability and speeds of up to 1,500 transactions per second (TPS), the XRPL project’s blockchain network is becoming increasingly centralized.
The main reason for this is due to the fact that the project is managed by Ripple Labs, which controls about 61% of the XRP supply. In addition, Ripple has also been exposed to scandals, including freezing the $1 million XRP withdrawn by its founder Jed McCaleb a few years ago, which later escalated into a lawsuit.
Ripple has also been involved in a world-renowned lawsuit with the U.S. Securities and Exchange Commission (SEC), after U.S. regulators said the company violated investor protection laws by selling $1.38 billion in XRP to customers in an unregistered offering . While the lawsuit caused initial panic, the price of XRP has held up well after Ripple scored a major victory in its case against the SEC.
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The Flare Network and its relationship with Ripple
The Flare network uses the Federated Byzantine Agreement-based (FBA) Avalanche (FBA) avalanche consensus mechanism, making it a highly scalable decentralized blockchain network.
Unlike XRPL, Flare integrates the Ethereum Virtual Machine (Ethereum Virtual Machine, EVM) and supports smart contracts. It can establish a two-way bridge between different blockchain networks to achieve trustless interoperability. Simply put, it can connect with other blockchains to expand the functionality of its own network and native tokens, such as integrating with smart contracts.
This makes Flare a "killer feature" for Ripple, serving as a bridge between the XRP ledger and smart contract platforms such as Ethereum.
As such, XRP will have smart contract functionality, enabling the use of Ripple’s native currency for dApps, DeFi solutions, and NFTs.
What pain points in the industry can Flare solve?
According to the project's development team, Flare is trying to solve two key problems.
First, 75% of the value in current blockchain networks cannot be exploited in a trustless manner through smart contracts. Second, smart contract platforms based on the Proof-of-stake (PoS) consensus mechanism or its improved versions (such as DPoS) are expected to face major security issues in the future.
According to the Flare team, the PoS-based network derives the security of the network from its native token. Validators lock up cryptocurrency in their wallets to validate transactions and blocks in exchange for staking rewards. While this keeps the network secure, it does not provide a safe alternative use case for the platform's native token.
For example, assume that lending ETH via a DeFi protocol can earn 30% Annual Yield (APY), while staking the same token only offers 5% APY. In this case, most users will choose the former as it offers better returns.
The above situation makes the native token unable to perform the important function of mortgage, and reduces the network's resistance to external threats. The native tokens of cryptocurrency projects based on the PoS algorithm must maintain a continuous rise in price in order to match the value growth of applications built on the blockchain (such as DeFi protocols). In other words, the total locked value of staked native tokens must be equal to or higher than the agreed value built on top of the PoS blockchain.
According to the developers of Flare, while this creates a favorable scenario for investors (as they can profit more from the long-term growth in value of the cryptocurrency), it is also very difficult for network participants who use the token for their daily activities. Not an ideal situation.
The project team believes this will significantly increase the cost of doing business as capital is diverted from other uses to cybersecurity.
The Flare network tries to solve the above two problems caused by the PoS blockchain by cutting off the connection between the value of its native Spark (FLR) tokens and the security of the ecosystem through the Avalanche consensus algorithm based on FBA. While the blockchain solution still uses Spark to function, the Spark token is primarily used (in terms of security) to prevent users from sending spam transactions.
Since Spark is not used to reward validators, the Flare network can allow trustless transactions for cryptocurrency smart contracts it does not support.
What is FXRP? How does it connect XRP to other blockchains?
FXRP is the equivalent of Ripple’s XRP token’s expression of distrust in the Flare network. At the same time, it also proves the possibility that it can become a protocol on the Flare network.
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How does FXRP work?
With FXRP, any XRP holder (the originator) can send cryptocurrency to a set of addresses (delegates) on the Ripple blockchain.
Next, the agent will issue the promoter's FXRP on Flare through the smart contract. The newly issued FXRP has the characteristics of being linked to the value of XRP 1:1, and is guaranteed by Spark tokens.
If a user wants to exchange his FXRP for XRP, he sends the previous tokens back to the Flare smart contract. Afterwards, the proxy will transfer an equivalent amount of XRP to the user's address on the XRP Ledger.
Interestingly, if the agent fails to send XRP to that user within a certain time, the network rewards him with the value of XRP he holds plus additional tokens to cover transaction fees for buying back the cryptocurrency. FXRP and other interoperability protocols on top of Flare most importantly the bridge between the two blockchains (and the transfer of native tokens from one blockchain to the other) is completely decentralized.
This is in stark contrast to the way WBTC (Wrapped BTC) is issued on Ethereum, which transfers BTC from the Bitcoin blockchain to a smart contract platform. While WBTC allows Bitcoin to be used on DeFi protocols and other Ethereum dApps, the process of achieving this requires a centralized custodian to hold BTC as collateral and issue (and subsequently redeem) WBTC for transfer by merchants to users.
On the other hand, there is no need for a centralized custodian in the Flare network to connect to the blockchain. Instead, there are many proxies who will provide Spark as collateral for every protocol on the chain, including FXRP. It’s like a user taking out a cryptocurrency-backed loan in the crypto-asset space, where agents have to deposit more collateral than the value of the FXRP tokens they can issue. While the XRP to FXRP exchange remains at 1:1, the collateral ratio is 2.5. In practice, this means that the value of Spark tokens deposited by the agent must be more than 2.5 times the value of one FXRP token. Flare requires agents to maintain a collateralization ratio of 2.5 at all times (the value of collateral decreases relative to FXRP due to users buying more Spark).
Another important point worth noting is that the agent's Spark will be locked in the smart contract after the token is minted. If the originator redeems their FXRP for XRP, the network sends him the collateral of the agent. In exchange for providing collateral to mint tokens, promoters pay delegators a creation fee in XRP, incentivizing the latter to support the network. At the same time, Flare will punish the bad behavior of the agent.
When an originator seeks to redeem his FXRP for XRP, the network provides agents with two deadlines. If he can only meet the first deadline, he gets his collateral back for a small penalty fee. If the agent misses even the second deadline, Flare will consider it a failed redemption, in which case the network will destroy 50% of the value of his Spark collateral and transfer the other 50% to return to the user.
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Flare: Provides upgraded potency for XRP
Ripple is very experienced in operating efficient and highly scalable blockchain payment networks, facilitating cost-effective payments for users and the convenience of providing fast transactions. However, the lack of native smart contract support on the XRP Ledger limits the functionality of XRP to almost exclusively payment transactions.
With cross-chain interoperability and the support of smart contracts and EVM, the Flare network is expected to change the above situation by adding more usage scenarios to XRP. Therefore, it is expected that Ripple will be able to set foot in the booming DeFi and NFT industries, and may become one of the main competitors of Ethereum.
Ripple isn’t the only project Flare is bridging with other blockchains. Cross-chain interoperability for Litecoin (LTC) and XRP rival Stellar (XLM) is also coming soon, according to a spokesperson for the project.
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