- XRP Ledger’s proposed “claim” mechanism marks a pivotal advancement, empowering issuers with greater control over asset distribution and recovery.
- The claim tool, distinct from freezing functions, offers precise, non-intrusive measures for addressing legal obligations and asset management.
The proposal to modify and incorporate a “claim” mechanism in the XRP Ledger (XRPL) is marking a significant milestone. The XRP community has already demonstrated strong support for this initiative, with 94% of affirmative votes from unique validators. But what does this change really imply, and how will it affect the sector?
XRP Ledger Clawback amendment flag got set !
The ledger set the ETA for activation now
It's all coming together folks… pic.twitter.com/Sn2s67YmTk
— Vet 🏴☠️ (@Vet_X0) January 25, 2024
First, let’s explore what this claim function is. Designed to give issuers more control over their distributed assets, this tool will enable the recovery of funds in cases like loss of access or fraudulent activities. Imagine an issuer discovering that tokens were sent to a compromised account. With this function, they could recover those funds, thus resolving legal issues and complying with judicial mandates.
David Schwartz, Ripple’s Chief Technology Officer, clarifies that this feature will allow token issuers to reclaim a specific amount of the issued tokens from current holders. This could effectively resolve legal disputes.
My initial reaction was that this was redundant. There's really nothing you can do with clawback that you can't do with the freeze feature that issued assets already have. But there is an important difference.
The primary use case would be assets that represent actual legal…
— David "JoelKatz" Schwartz (@JoelKatz) October 2, 2023
Now, many might think, isn’t this similar to the existing freezing function? Here comes the crucial distinction. The claim is not an “all or nothing” like freezing. It is more precise, allowing for less intrusive and specific actions.
Consider assets representing real legal obligations, like a stablecoin redeemable for cash. If a legal obligation ceases to exist due to external reasons, like a court order, there must be a way to reflect this in the ledger. Otherwise, it would be impossible to have assets representing these obligations on the XRPL.
Freezing has its limitations
For example, a frozen asset may still be a legal obligation of the issuer or not, depending on the context. This ambiguity complicates the accurate representation of the issuer’s legal obligations in the ledger, affecting accountability and auditability.
For these reasons, the claim becomes a valuable tool. Although nothing can be done with the claim that can’t be done with freezing, the precision and lesser intrusion of the claim are key aspects. It’s like comparing a surgical operation to a large-scale treatment: both are effective, but one is more precise and with fewer side effects.
A legitimate concern is that, being a more “surgical” tool, the claim might be used more frequently. To illustrate this, imagine an analogy: if Russia only had nuclear weapons, they probably wouldn’t invade Ukraine, but having more precise options increases the likelihood of action. Thus, the claim becomes a more viable option for specific situations, compared to freezing, which would be the “nuclear option.”
It’s important to note that issuers must opt to enable the claim before issuing their assets. This gives freedom to users: if they do not wish to have assets susceptible to claim or freezing, they can simply choose not to use them. Additionally, remember that XRP, having no issuer, can never be subject to claim or freezing.
This functionality is not unique to XRPL; other blockchains with stablecoins already incorporate similar mechanisms. However, its inclusion in XRPL simplifies processes and procedures when interacting with stablecoins, especially benefiting auditors and other institutions that require standardized processes.