David “JoelKatz” Schwartz, CTO at Ripple, explained how RLUSD – the upcoming stablecoin on the Speaking via
Why could Ripple’s stablecoin RLUSD reach $1,200?
In response to community chatter about a screenshot of this Show With an RLUSD value of $1,200 on the Xaman wallet, Schwartz emphasized that such a price is theoretically possible. “As RLUSD goes live, there may be a shortage of supply in the early days before the market stabilizes,” he noted. “There is actually someone willing to pay $1,200/RLUSD for a fraction of one RLUSD. The tools will show you the highest price anyone is willing to pay.” In paying it, even if it is only for a small amount someone might want the “honor” of buying the first part of RLUSD on the DEX exchange.”
However, he was quick to stress that “the price will return to very close to $1 once supply stabilizes,” suggesting that any eye-catching listing would be more of a novelty event than a true market assessment of RLUSD’s long-term value. value. “But rest assured, the price will return to closer to $1 once supply stabilizes. (…) If you want to spend a lot of money to get a small portion of RLUSD before everyone else, you can. But please don’t expect to The price will remain above $1 once things settle down, which I expect they will do very quickly.
Part of the reason for these anomalies, according to the Ripple CTO, lies in the underlying minting and burning mechanisms that underpin stablecoins. Minting the Ripple stablecoin involves creating new units when demand rises, while burning is the process of removing units from circulation when demand falls. Both processes help maintain the correlation to $1 but can lag behind real-time trading. At launch, an imbalance between the number of tokens available (supply) and those seeking to buy them (demand) may cause severe distortions in initial prices.
Schwartz’s statements on social media echoed points he made at the emergency conference in Prague. He discussed the “weird failure scenarios” that could occur when a stablecoin is first launched, jokingly mentioning the possibility that “people will spend more just to own RLUSD first.”
The scenario he described was someone paying $3 — instead of $1 — just to say they were the original owner of the stablecoin. While this is still small compared to $1,200, the principle remains: Such anomalies, he said, could lead some buyers to mistakenly believe that the Ripple stablecoin may be a speculative asset rather than a stablecoin.
“It will obviously go back down from $3 to $1 once someone mints enough of it,” noted Ripple’s CTO, adding that this is where arbitrageurs play a pivotal role. When the price of a stablecoin floats significantly above or below its peg, traders exploit the mismatch, either selling at a higher price or buying at a discount and redeeming the notional value. This process returns the price to its target.
Schwartz also warned: “Please do not miss out on purchasing a stablecoin! This is not an opportunity to get rich.”
Ripple software engineer Neil Hartner reported that GateHub USDC was “regularly exceeding $2 per GateHub USD” during the initial automated market maker (AMM) phase, especially on weekends when GateHub’s mints and burns were offline.
There are a lot of strange failure scenarios that you might not think about when launching a stablecoin 😂 @Joel Katz In Prague about 10 days ago. $RLUSD To the moon! 🤣
Funny things in this crypto space. pic.twitter.com/z71gwIJcL2– 🌸Crypto Erie 🪝Carpe Diem (@sentosumosaba) December 15, 2024
The important point here is that many stablecoins rely on an external entity or protocol to mint and redeem them. When these operations do not operate 24/7 – or when liquidity is restricted outside business hours – prices can deviate from the $1 peg on specific exchanges or trading venues.
Hartner cited Circle’s March 2023 USDC unpegging incident as another cautionary parallel. “Price distortions can occur if minting and burning are not available 24/7. The same thing happened when the USDC unpegged over the weekend in March 2023 because markets panicked and Circle had limited liquidity operations outside of hours,” Hartner wrote. the job.
Community member Khaled Al-Awadi, “Surely, there should be a fixed buying and selling price on the DEX and on other listed exchanges?” He pointed out.
In response, Hartner emphasized that the peg is not imposed by global algorithmic price setting but by traders themselves. “You don’t cash out stablecoins on exchanges, you trade them for fiat currencies with other traders,” he explained. If more stablecoins are sold than the number of buyers willing to pay $1, the price on that specific exchange may fall until market participants or liquidity providers intervene.
At press time, XRP was trading at $2.40.
Featured image from YouTube, chart from TradingView.com
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