XRP's Expanding Ecosystem: Liquidity Gains vs. Emerging Risks in a Multi-Chain World
The XRP ecosystem is undergoing a rapid transformation. Driven by initiatives like Hex Trust’s wrapped XRP (wXRP) launch across Ethereum, Solana, Optimism, and HyperEVM – backed by $100 million in initial liquidity – XRP is becoming increasingly accessible across diverse blockchain networks. This expansion, alongside Coinbase’s cbXRP on Base and Axelar’s eXRP, positions XRP as a potential trading pair for Ripple’s RLUSD stablecoin and unlocks new DeFi opportunities. However, this proliferation of wrapped XRP formats introduces a complex web of custodial arrangements, bridge infrastructure, and inherent risks that demand careful consideration. This article dives deep into the benefits and drawbacks of this multi-chain strategy, analyzing the trade-offs between liquidity gains and the new layers of trust required.
The Rise of Wrapped XRP: A Multi-Chain Strategy
Traditionally confined to the XRP Ledger (XRPL), XRP is now being “wrapped” – represented as tokens on other blockchains – to tap into their liquidity and functionality. Hex Trust’s wXRP, launched on December 12th, utilizes LayerZero’s Omnichain Fungible Token (OFT) standard, ensuring supply synchronization across multiple chains. Coinbase’s cbXRP follows a similar 1:1 backing model, while Axelar’s eXRP leverages its bridge to connect XRPL to a wider EVM ecosystem. Even Firelight’s stXRP adds another layer, offering a liquid staking derivative of XRP on Flare. Within months, XRP will exist in at least four distinct wrapped formats across a dozen networks.
Key Players and Their Approaches
- Hex Trust (wXRP): Issues wXRP tokens 1:1 with native XRP held in segregated institutional custody, utilizing LayerZero for cross-chain synchronization.
- Coinbase (cbXRP): Offers cbXRP on Base, backed 1:1 by XRP held in Coinbase custody, redeemable through their operational flow.
- Axelar (eXRP): Provides eXRP on the XRPL EVM sidechain, accessible by locking XRP on the XRPL and minting eXRP via Axelar’s bridge.
- Firelight (stXRP): Offers stXRP, a liquid staking derivative of XRP on Flare.
- Wrapped.com: Has offered Wrapped XRP as an ERC-20 token on Ethereum since December 2021, with Hex Trust as the custodian.
RLUSD and Expanding XRP’s Addressable Market
The expansion of XRP is closely tied to the growth of RLUSD, Ripple’s USD-backed stablecoin, which has surpassed $1 billion in circulation, primarily on Ethereum. Deep XRP/RLUSD trading pairs on chains with existing capital – like Ethereum, Solana, and Base – significantly expand XRP’s addressable market beyond the native orderbooks of the XRPL. This creates new arbitrage opportunities and potentially attracts a broader range of traders and investors.
The Trade-Off: Trustless vs. Custodial Models
While the expansion offers liquidity benefits, it fundamentally shifts the risk profile of XRP. Native XRP operates as a trustless protocol asset, relying on the consensus mechanism of the XRPL. Wrapped XRP, however, introduces a custodian holding the underlying XRP, a bridge coordinating cross-chain state, and smart contracts managing the synthetic token. The crucial question is whether the liquidity gains outweigh the new layers of trust, operational complexity, and potential attack vectors.
Understanding the Risk Landscape
The shift to wrapped XRP introduces several key risk categories:
Custody and Issuer Risk
Every wrapped XRP product relies on a custodian to hold the underlying XRP. For wXRP, it’s Hex Trust; for cbXRP, it’s Coinbase. If a custodian halts withdrawals, becomes insolvent, or suffers a hack, the backing of the wrapped token disappears, regardless of the XRPL’s status. This represents a significant centralization point and a potential single point of failure.
Bridge and Messaging Risk
Bridges, like LayerZero used by Hex Trust’s wXRP and Axelar for eXRP, are prime targets for exploits. Hacken’s 2025 Web3 Security Report revealed that over $1.5 billion of the $3.1 billion stolen from crypto services in the first half of 2025 was attributed to bridge hacks – accounting for over 50% of DeFi losses. A bug in a bridge contract can potentially drain reserves across all connected chains simultaneously.
Redemption Mechanics and Peg Risk
The promise of 1 wrapped token always redeeming for 1 native XRP depends on smooth mint/burn flows and reliable issuers. Hex Trust’s wXRP restricts redemption to authorized participants, creating a dependency on intermediaries. If these intermediaries fail, liquidity providers holding wXRP may have no direct path to redeem for native XRP.
Liquidity Fragmentation
Multiple “XRP” tickers across different chains (native XRP, wXRP, cbXRP, eXRP) split order books and depth. Some wrappers may have deep liquidity, while others remain thin and fragile. This fragmentation can lead to arbitrage gaps, temporary de-pegs, and user confusion.
Liquidity Gains: Real, But Conditional
RLUSD’s rapid growth to $1 billion in circulation demonstrates the demand for a stablecoin on Ethereum. Hex Trust’s $100 million initial TVL for wXRP seeded deep orderbooks from day one. Wrapping XRP on Ethereum, Solana, and Base provides access to the deepest on-chain trading venues, offering better execution, tighter spreads, and integration into lending and yield protocols unavailable on XRPL. The XRPL EVM sidechain and Axelar bridge create a direct path from XRPL into multi-chain DeFi.
However, these liquidity improvements are contingent on wrappers maintaining tight pegs, custodians reliably processing redemptions, and bridges remaining secure. Each assumption introduces new points of failure that native XRPL does not have.
Quantifying the Potential: Market Size and Risk
If wrapped XRP reached 5% of total liquidity on Ethereum, it could capture $8.26 billion. Solana offers another potential $810 million. However, these figures are predicated on the successful mitigation of the risks outlined above.
Evaluating the Expansion: Four Key Questions
To assess whether the expansion genuinely improves market plumbing or simply adds synthetic layers, consider these questions:
- Who holds the XRP, and under what regulatory regime? Regulatory oversight from entities like the New York Department of Financial Services (for RLUSD) and Ripple’s national bank charter provides a degree of legal recourse.
- How many dependencies exist between the user and native XRP? The more intermediaries involved, the greater the risk.
- What economic role does XRP serve once wrapped? Is it a transactional medium or merely collateral in DeFi protocols?
- Is the risk adequately compensated and transparent? Are the benefits worth the potential vulnerabilities?
Conclusion: A Liquidity-for-Custody Trade-Off
XRP’s expansion across multiple blockchains is not a decentralization story; it’s a liquidity-for-custody trade-off. Wrapped tokens offer access to deeper markets and richer protocol integrations, but they replace the XRPL’s trustless settlement with trusted custodians, experimental bridges, and fragmented redemption flows. For institutions considering deploying capital into wrapped XRP, the critical question isn’t “does this expand XRP’s reach?” but “does the custodial and bridge infrastructure meet the same reliability standard as the native ledger it wraps?” The current architecture functions as long as nothing breaks. The real test will come when – and not if – something does.
Mentioned in this article: XRP, Ethereum, Solana, Ripple, Coinbase