Ripple CTO David Schwartz Clarifies XRP Prefunding Strategy Amid Debates

Ripple CTO David Schwartz has taken to Twitter to clarify the company’s prefunding strategy for XRP, a subject that has been the focus of recent debates. 

In response to a thread discussing Ripple’s nostro/vostro accounts and prefunding, Schwartz explained that instead of prefunding in every market, customers can prefund in just one account and make payments to any On-Demand Liquidity (ODL) destination market.

Schwartz also highlighted the flexibility of Ripple’s system, stating that customers can hold their funds in their preferred asset and pay in a different one.

He emphasized the difference between parking USD to make USD->MXN payments versus prefunding MXN to make USD->MXN payments. This flexibility allows customers to have more control over their funds and reduce the need for multiple pre-funded accounts.

Regarding the line of credit option, Schwartz confirmed that Ripple can prefund accounts using their own XRP at very near zero cost. However, the company does take on some credit risk and must charge for that accordingly. In this scenario, the responsibility is shifted to Ripple for a fee, as they provide the prefunding capital in XRP.

Despite Ripple taking on some credit risk, Schwartz admitted that there is a non-zero risk that the customer will not pay the company back for the XRP, particularly if a customer’s funds are held in a bank that fails or goes bankrupt for some reason.