Ripple’s XRP will soon be expanded with critical functionalities, including DeFi, NFT and smart contract functionality.

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If speculation is to be believed, there is more at stake than just DeFi and smart contracts. Ripple confirmed, that federated sidechains are coming. The implementation will greatly expand the use cases of the XRP ledger, including the addition of DeFi, NFT, and smart contract capabilities.

“You asked, we listened. We’ve introduced Federated Sidechains for the XRPLedger so you can enjoy the power of the XRPL on a sidechain that acts as its own blockchain. Learn more about new use cases such as native # DeFi functions and smart contracts.“

While the company confirms that cross-border payments remain its “bread and butter”business, federated sidechains Ripple will open up a world of possibilities in the future.

In addition, speculation is mounting that Ripple has a bigger target in mind. Namely, the use of sidechains to conquer the market for digital central bank currencies (CBDC).

Ripple CTO Explains Why Sidechains are Necessary

In an interview with YouTube channel Thinking Crypto, Ripple CTO David Schwartz comments on federated sidechains as follows:

“The general idea is to increase the usefulness of the XRP ledger by essentially having additional ledgers that literally sit on the side.”

The idea behind this concept is to divide the functionality into different chains. This way, the mainchain that Ripple uses for payments remains fast and inexpensive.

“If you try to put everything on a single chain, the chain becomes slow and expensive, and it degrades people’s ability to use it for easy payments.”

According to Schwartz, they could have built smart contracts, etc.into the mainchain. But neither he nor the XRP community would have accepted that because it comes down to being “the best digital asset for payments.”

Playing with the digital Central bank currency

Ripple announced a pilot project for CBDCs in March this year. This project is based on the XRP ledger, which has proven itself as a reliable, secure and highly scalable payment system for over eight years.

However, as an offering to central banks, it also provides transaction protection and more control than a standard public ledger.

Even more interesting is the aspect of interoperability of the project. According to Ripple, these private ledgers are able to connect to the existing legacy infrastructure – and to each other as well.

This is an interesting perspective when you think of cross-border settlements that take place via sidechains in the same network.

“We are also working on a new approach that will allow central banks to join a network of CBDC ledgers that will allow full interoperability in settlement, while allowing each member to maintain their monetary and technological independence.“

Although CBDCs were not mentioned in today’s announcement, it is not difficult to count two and two together.

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Text credit: Cryptoslate

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