XLS-66 Lending Protocol

XRPL-native protocol for issuing uncollateralized, fixed-term loans using pooled funds with First-Loss Capital protection.

DraftRequires: XLS-65, XLS-64Authors: V. Tumas, A. Malhotra

Wallet Management

Connect wallets for each role in the lending protocol: Issuer, Loan Broker, Depositor, and Borrower.

Issuer

Loan Broker

Depositor

Borrower

Protocol Architecture

+-----------------+                          +-----------------+                       +-----------------+
|    Depositor    |                          |    LoanBroker   |                       |     Borrower    |
|   AccountRoot   |                          |   AccountRoot   |                       |   AccountRoot   |
|-----------------|                          |-----------------|                       |-----------------|
| Owner Directory |                          | Owner Directory |                       | Owner Directory |
+-----------------+                          +-----------------+                       +-----------------+
      ^         |                                     |                                        |
      |       Reserve                              Reserve                                  Reserve
   Account      |                                     |                                        |
      |         V                                     V                                        V
+-----------------+          +-----------------+          +-----------------+          +-----------------+
|                 |          |                 |    1:N   |                 |    1:N   |                 |
|     MPToken     |          |      Vault      |--------->|   LoanBroker    |--------->|       Loan      |
|                 |          |                 |          |                 |          |                 |
+-----------------+          +-----------------+          +-----------------+          +-----------------+
                                    ^                            |
                                    |                         Account
                                 Account                         |
                                    |                            V
                             +-----------------+          +-----------------+
                             |  Pseudo-Account |          |  Pseudo-Account |
                             |   (Vault)       |          |   (LoanBroker)  |
                             +-----------------+          +-----------------+

Protocol Flow

1

Create Vault

Loan Broker creates a Vault (XLS-65) to hold pooled funds from depositors.

2

Create LoanBroker

Create LoanBroker object linked to the Vault with fee rates and cover settings.

3

Deposit Cover

Optionally deposit First-Loss Capital to protect depositors from defaults.

4

Issue Loans

Create Loan objects with agreed terms. Both parties must sign the transaction.

5

Payments

Borrower makes periodic payments. Interest accrues to Vault depositors.

6

Completion

Loan matures or defaults. Clean up objects and withdraw remaining capital.

Key Concepts

Fixed-Term Loans

Loans have a known end date with constant periodic payment schedules using standard amortization formulas.

First-Loss Capital

Optional protection mechanism where the Loan Broker deposits funds to absorb initial losses in case of borrower defaults.

Management Fees

Loan Broker earns a percentage of interest payments as compensation for managing the lending protocol.

Off-Chain Underwriting

Creditworthiness assessment happens off-chain. The protocol focuses on on-chain execution and settlement.

XLS-66 Lending Protocol Features

LoanBroker Object

Central management object for the lending protocol linked to a Vault for liquidity.

  • Tracks total debt owed to Vault
  • Manages First-Loss Capital pool
  • Configurable management fee rate
  • Maximum debt limits
  • Cover rate requirements

Loan Object

Individual loan agreement between the Loan Broker and Borrower with fixed terms.

  • Fixed payment schedule
  • Multiple fee types supported
  • Interest rate variations
  • Grace period for defaults
  • Impairment tracking

Payment Types

Various payment scenarios supported with appropriate fee and interest handling.

  • Regular periodic payments
  • Late payments with penalties
  • Overpayments (early principal)
  • Full early repayment
  • Automatic amortization

Risk Management

Built-in mechanisms to protect vault depositors from borrower defaults.

  • First-Loss Capital requirement
  • Cover liquidation on default
  • Minimum cover rate enforcement
  • Loan impairment tracking
  • Fee redirection when undercovered