XRP's Growing Adoption as Collateral Sparks Concerns Over Concentration

XRP's growing adoption as collateral for real loans has been observed in the market, with the first platform, Morpho, already dominated by large investors. The platform, launched in August through Flare, allows XRP holders to mint FXRP, move it to Ethereum, and borrow Ripple's RLUSD stablecoin without immediately selling their XRP exposure. As of October 1, Morpho had about 7.18 million RLUSD in outstanding loans against 10.76 million FXRP, with the three largest addresses accounting for almost all of that debt.

The concentration of debt among a small number of participants may be a temporary phenomenon, as developers prepare to bring lending directly onto the XRP Ledger. The proposed lending architecture, currently undergoing security reviews, would allow fixed-term credit to originate on the network, removing the need for FXRP and making XRP-backed credit easier to access.

The existing market's concentration could become more important if XRP's price weakens, as Morpho allows lenders to liquidate a position once the value of its debt rises above 77% of the collateral backing it. The largest position in the market could withstand a 45% decline in the FXRP-to-RLUSD ratio, while some smaller borrowers have less room to maneuver.