XRP Used as Collateral on Ethereum; Loans Concentrated

XRP is being used as collateral for live dollar loans on Ethereum after FXRP launched in August. On-chain records show about 7.18 million RLUSD in outstanding loans backed by roughly 10.76 million FXRP as of Oct. 1.

The FXRP process lets XRP holders mint a tokenized version of XRP on the Flare network, transfer that token to Ethereum and borrow the RLUSD stablecoin through a Morpho lending market without selling native XRP immediately.

Borrowing is concentrated. Three addresses account for about 93% of the roughly $7.2 million in outstanding debt, meaning a few wallets have outsized influence on the market’s size. Wallet addresses may represent the same entities or different holders; on-chain records do not identify owners.

Liquidity for borrowers is similarly centralized. Sentora’s RLUSD Main vault supplied about 8.53 million RLUSD, representing most available liquidity in the market at the observed time. The FXRP lending pool equals about 2.03% of Sentora’s total vault allocations. Sentora’s current supply cap is 10 million RLUSD, leaving unused capacity under that limit.

Morpho’s liquidation policy triggers when debt exceeds 77% of collateral value. Based on current balances, the largest borrower could withstand about a 45% drop in the FXRP-to-RLUSD ratio before reaching liquidation, while the next two largest have buffers near 38%. Smaller positions have thinner margins: one account with about 121,000 RLUSD of debt against 133,000 FXRP would reach liquidation after about a 21% decline in the FXRP-to-RLUSD ratio if other factors remain unchanged. The market recorded some liquidations in September but showed no realized or unrealized bad debt as of Oct. 1.

A forced liquidation of a large position would require a counterparty to absorb a sizable amount of FXRP. A liquidator could hold FXRP, sell it on Ethereum, move it back to Flare, or redeem it for native XRP on the original ledger, each option affecting liquidity and price pressure differently.

Developers are preparing a native lending architecture for the XRP Ledger that is undergoing security reviews. Native lending would enable fixed-term credit to originate directly on XRPL with underwriting before loans are created, removing the need to mint FXRP and bridge assets to Ethereum and using a different credit model from Morpho’s overcollateralized approach.

Outstanding debt could rise without increasing the number of XRP owners if existing holders deploy tokens already in their possession or institutions recycle existing balances. How the market changes will depend on whether borrowing spreads across more addresses or remains concentrated among the current large holders.