Trust Lines and Issued Currencies

How the XRP Ledger lets accounts issue and hold IOUs for any currency or asset, not just XRP.

XRP is not the only asset that can exist on the XRP Ledger. Through a mechanism called trust lines, any account can issue IOUs representing essentially any currency or asset — fiat currencies, other cryptocurrencies, commodities, loyalty points, or anything else — and other accounts can hold and trade those IOUs natively on the ledger.

How a trust line works

A trust line is a relationship between two accounts (or, more precisely, an account and a specific currency issued by another account) that specifies a maximum amount of that issuer's IOUs the account is willing to hold. Concretely:

1. Account B creates a trust line to issuer A for currency USD, with some limit (say, up to 1,000 USD-from-A).
2. Issuer A can now send B up to 1,000 units of its USD IOU.
3. B holds a balance that represents "1,000 units of USD, as issued and backed by A" — not literal US dollars, but a claim against A that is only as good as A's willingness and ability to redeem it.

This is conceptually similar to how RipplePay's original trust-network idea worked (see Origins and Founding) — trust is explicit, bilateral, and limited, rather than assumed.

Why this matters

Trust lines are what allow the XRPL to natively support:

• Stablecoins and tokenized fiat, such as Ripple's own USD-backed RLUSD stablecoin, issued directly on the XRPL alongside Ethereum.
• Tokenized real-world or synthetic assets, issued by whichever entity is willing to back them.
• The built-in decentralized exchange, which can match offers between XRP and any issued currency, or between two different issued currencies, directly at the protocol level.

Issuer risk is real and explicit

Because an issued currency is only as trustworthy as its issuer, the XRPL's design makes this risk visible rather than hiding it: a balance of "10 EUR issued by Some Company" is clearly not the same thing as holding actual euros, and trust lines require the holder to explicitly opt in to trusting a specific issuer up to a specific limit. This is different from a token standard where anyone can send you an asset without your consent — on the XRPL, you cannot receive an issued currency from an issuer you have not trust-lined.

Rippling

By default, a "no ripple" flag can be set on trust lines to control whether balances can flow through an account from one trust line to another of the same currency — a setting mainly relevant for accounts (like exchanges) that hold trust lines with many different issuers of the same nominal currency (e.g., several different USD issuers) and need to prevent unintended cross-issuer flows.