Circle Is Using DEX On XRP Ledger to Issue USDC. Here's how

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XRPL validator Vet recently highlighted a distinctive approach Circle has taken in issuing USDC on the XRP Ledger.

The validator stated that Circle is using a decentralized exchange (DEX) on the XRP Ledger to issue USDC, calling the process unique and worth exploring.

In an attached video, Vet provided an in-depth explanation of how this method works and how it differs from traditional token creation mechanisms on the XRP Ledger.

Traditional Token Creation on XRPL

Vet first outlined the standard way tokens are created on the XRP Ledger. He explained that two accounts are required: an issuer account and a minter account. The issuer initiates a payment to the minter, which results in the creation of new tokens.

For example, if the issuer sends a payment of 100 RL USD to the minter, the minter gains a balance of 100 RL USD, while the issuer’s account shows a debt of 100 RL USD. This simple and direct mechanism is the same method Ripple uses when issuing tokens, making it a straightforward process of payment-based token creation.

The Role of the Centre Consortium

Moving on to Circle’s model, VET explained that the process involves the Centre Consortium, an entity co-founded by Circle and Coinbase to oversee the issuance and governance of USDC.

This consortium is designed to manage requirements such as restricting minting rights to authorized members, adding or removing members, and setting limits on the amount of USDC to be minted by individual participants. These rules ensure that only vetted organizations within the consortium can issue USDC, while preventing unauthorized activity.

Dual Token System: USDC and USDC Allow

The consortium introduced a dual-token system involving two accounts on the XRP Ledger: one issuing USDC and another issuing USDC Allow. The distinction is significant. USDC Allow is restricted to consortium members and used for minting purposes, while USDC itself remains open to the wider public. VET noted that this dual system enables Circle to enforce membership rules while still keeping the stablecoin freely accessible to users outside the consortium.

Using the DEX for Minting

Unlike the traditional payment method, Circle employs the XRP Ledger’s decentralized exchange to facilitate token creation. The issuer creates a DEX offer that allows one USDC Allow to be exchanged for one USDC at a one-to-one ratio. When a consortium member issues 1,000 USDC Allow, they can then trade it on the DEX for 1,000 USDC.

This mechanism effectively transfers USDC to the consortium member, while the issuer account shows a corresponding liability. By structuring issuance through the DEX, Circle ensures that the minting process is transparent and entirely on-chain.

Transparency and Control

Vet emphasized that this approach offers both transparency and flexibility. USDC Allow ensures that only authorized members can participate in minting, while USDC remains unrestricted for general use.

The use of the decentralized exchange adds a layer of transparency, since all transactions and offers are verifiable on-chain. This method, though more complex than the traditional payment-based model, provides a system that aligns with Circle’s need for controlled issuance while preserving accessibility for the broader market.

In his explanation, Vet concluded that Circle’s decision to issue USDC via the XRP Ledger’s DEX is an innovative approach that balances governance requirements with the benefits of decentralization.

By leveraging the DEX, Circle ensures transparency in the minting process while maintaining strict controls through USDC Allow. This structure demonstrates how the XRP Ledger’s native functionalities can be used to build flexible and secure systems for stablecoin issuance.

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