Mind Your Credit

Abstract

The Ripple credit network has emerged as a payment backbone with key advantages for financial institutions and the remittance industry. Its path-based IOweYou (IOU) settlements across different (crypto)currencies conceptually distinguishes the Ripple blockchain from cryptocurrencies (such as Bitcoin and altcoins), and makes it highly suitable to an orthogonal yet vast set of applications in the remittance world for cross-border transactions and beyond. This work studies the structure and evolution of the Ripple network since its inception, and investigates its vulnerability to devilry attacks that affect the IOU credit of linnet users' wallets. We find that about 13M USD are at risk in the current Ripple network due to inappropriate configuration of the rippling flag on credit links, facilitating undesired redistribution of credit across those links. Although the Ripple network has grown around a few highly connected hub (gateway) wallets that constitute the core of the network and provide high liquidity to users, such a credit link distribution results in a user base of around 112, 000 wallets that can be financially isolated by as few as 10 highly connected gateway wallets. Indeed, today about 4.9M USD cannot be withdrawn by their owners from the Ripple network due to PayRoutes, a gateway tagged as faulty by the Ripple community. Finally, we observe that stale exchange offers pose a real problem, and exchanges (market makers) have not always been vigilant about periodically updating their exchange offers according to current real-world exchange rates. For example, stale offers were used by 84 Ripple wallets to gain more than 4.5M USD from mid-July to mid-August 2017. Our findings should prompt the Ripple community to improve the health of the network by educating its users on increasing their connectivity, and by appropriately maintaining the credit limits, rippling flags, and exchange offers on their IOU credit links.

Contemporaneous financial intermediation

“…In this case, XRP is only used to pay the minute transaction fee imposed to prevent senseless transactions (Rapoport et al 2014). To settle credit between sender and receiver, the most suitable route of credit between the sender's and receiver's banks is used (Moreno-Sanchez et al 2018). Whenever a payment is made that involves two banks that are not connected by a direct trust line (i.e., Nostro accounts), the payment "ripples" through other trust relationships in the network.…”

“…Risks that are particularly pronounced due to the early level of RippleNet implementation are the lack of liquidity and the poor inter-connectivity of certain banks. Moreno-Sanchez et al (2018) show that if banks are poorly interconnected, then it is possible that users can no longer access their funds even if the involved sender and beneficiary bank are not insolvent. In this case, the issue of liability is unclear.…”

Token Model and Interpretation Function for Blockchain-Based FinTech Applications

“…Financial services: Asset management, investment trading, crowdfunding, and so on (e.g. [47]). Proof-as-a-service: Notaries, registers and attestation, supply-chain management, credit management, and so on (e.g.…”

Topology analysis of the Ripple transaction network

“…12 Moreno-Sanchez et al analysed the Ripple network structure and investigated the corresponding vulnerabilities that may cause attacks and affect the credit of users. 13 In the papers mentioned above, only Moreno-Sanchez et al 13 have analysed the topology of the Ripple network. Moreno-Sanchez et al 13 analysed the network from vulnerability perspectives, whereas this paper focuses on the topology formed by accounts to identify the potential bottlenecks in the topology.…”

“…13 In the papers mentioned above, only Moreno-Sanchez et al 13 have analysed the topology of the Ripple network. Moreno-Sanchez et al 13 analysed the network from vulnerability perspectives, whereas this paper focuses on the topology formed by accounts to identify the potential bottlenecks in the topology.…”