Well-known crypto Lawyer John E. Deaton spoke to Nick Burrafato from Linqto about ways he sees banks being able to use XRP via ODL. In July, Judge Torres granted a partial victory to Ripple and a partial victory to the US Securities and Exchange Commission (SEC). The SEC had sued Ripple over its sales of XRP but the Judge deemed only sales to institutional investors as securities.
This sparked hope that banks could soon be using ODL in the US. Ripple Chief Technology Officer David Schwartz said one day after the ruling, “We’re still figuring this out. We don’t currently have ODL-related sales with a US Nexus, and not being able to do so is not really a huge deal. We can still do ODL in the US so long as XRP is never sourced from Ripple.”
ODL, which stands for ‘On Demand Liquidity’, is Ripple’s flagship cross-border payments system. It uses XRP to facilitate transactions between sending and receiving entities without Ripple being directly involved. This differs from Ripple’s Liquidity Hub, where Ripple facilitates transactions. This is why XRP has not been used in the Liquidity Hub, with Ripple receiving criticism for it.
Ways for Banks to Use ODL
John E. Deaton said that his initial thoughts after the ruling were that institutions could use ODL as they were not making an investment, not relying on Ripple’s efforts, and just using the asset as a bridge currency. With ODL, the asset XRP is not held and there is no need for prefunding as in nostro and vostro accounts.
Deaton reasons that no one could expect to profit from XRP in the short time frame a transaction via ODL takes. He said: “As Bank of America isn’t purchasing it directly from Ripple, they can use it. They can certainly purchase it off Coinbase or Uphold or somewhere like that and use it how they see fit that way and then resell it.”
This view was echoed even by SEC chair Gary Gensler back in 2018 when he was teaching at MIT when he claimed that XRP was utilized as a bridge currency.
The case SEC vs. Ripple is still pending a jury trial regarding the roles of CEO Brad Garlinghouse and Executive Chairman Chris Larsen concerning what the SEC calls “Aiding and abetting” Ripple in its sales to institutional investors. While the trial is scheduled for 2024, the SEC has filed a motion to file an interlocutory appeal to challenge Ripple’s programmatic and other sales.
The SEC is not challenging the status of XRP itself, saying in the filing that “The SEC does not seek appellate review of any holding relating to the fact that the underlying assets here are nothing but computer code with no inherent value.”
At the time of writing, XRP holds above $0.5, up just over 1% in 24 hours, as data from CoinMarketCap shows.