XRP’s Clawback Feature Faces Severe Criticism Sparking Debate

• XRP’s Clawback lets buyers recover tokens, leading to talks about decentralization.  
• AMM pools now obey stricter rules that improve liquidity and increase issuer control.  
• Experts say Ripple’s hold over validators could make XRP less decentralized than it is.

A major update went live on the XRP Ledger last Friday following an overwhelming validator vote with over 90% approval. This upgrade introduced the clawback amendment, enabling Ripple’s dollar-pegged stablecoin, RLUSD, to trade directly on XRPL’s decentralized exchange. The move is expected to enhance liquidity and trading opportunities, potentially driving more decentralized finance (DeFi) activity on the network.   

Alongside this, XRPL developers confirmed that the clawback function allows issuers to retrieve tokens under specific conditions, igniting debates about its impact on decentralization. The feature applies only to newly issued tokens. 

Market observers, including Wendy O, argue that this function centralizes XRPL, but many industry experts maintain that XRP transactions remain irreversible, preserving the ledger’s decentralized nature. This feature aligns XRPL with traditional financial regulations and offers increased consumer protection.  

Regulatory Compliance Strengthened with AMM Pool Integration  

With the latest upgrade, XRPL’s Automated Market Maker (AMM) pools have adopted stricter compliance measures. These changes prevent frozen tokens from being deposited into AMM pools, modifying the “AMMDeposit” transaction type to ensure asset security. This adjustment means an XRP/RLUSD AMM pool will become viable, increasing liquidity for both assets.  

Ripple’s Chief Technology Officer, David Schwartz, had previously proposed that RLUSD could enhance XRP’s liquidity. Additionally, the Ledger has implemented stricter deposit rules for service providers. Unauthorized accounts can no longer deposit single-sided or double-sided assets into AMM pools if a pair of tokens is frozen. 

Token issuers must now use the AMMClawback function to retrieve assets from pools, ensuring compliance without disrupting trading activity. The amendment secured 28 out of 35 votes, reinforcing XRPL’s alignment with financial regulations while expanding decentralized liquidity opportunities.   

Related: RLUSD/XRP AMM Pool Achieves $423K TVL Following The XRPL Update

Critics Question XRP’s Decentralization and Ripple’s Influence

While the new upgrade went live, Anthony Georgiades, founder and general partner at Innovating Capital, raised concerns about XRP’s decentralization. In an interview with Yahoo Finance, he highlighted how Ripple Labs retains control over the network. While XRP operates on a decentralized ledger, Ripple Labs influences transaction validation, as most users rely on its default node list, chosen from approved validators.  

Georgiades emphasized that this centralization weakens XRP’s position as a truly decentralized asset. He warned that such concentration could make XRP vulnerable to regulatory overreach, allowing authorities to target specific entities or jurisdictions. 

This could lead to a loss of network value, trust issues, and potential fragmentation. Concerns over Ripple’s control raise questions about XRP’s ability to compete with decentralized blockchain systems despite its speed and cost advantages.  

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