How Ripple's RLUSD Can Be Frozen Under the GENIUS Act

The Chief Technology Officer of Ripple, David Schwartz, has provided clarity on the functionality of the Ripple USD (RLUSD) stablecoin, confirming that it can be temporarily suspended or reversed to meet legal and regulatory demands.

This revelation follows an update from Senator Bill Hagerty regarding the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act. This legislation outlines a requirement for stablecoin providers to incorporate mechanisms that allow for the freezing, seizing, or halting of transfers when legally mandated.

Understanding the GENIUS Act and Its Implications

The GENIUS Act was initially introduced on February 4, with an amended version revealed on March 10 by Senator Hagerty, which included several significant modifications. One particular element requires that:

“The permitted payment stablecoin issuer must seize, freeze, burn, or prevent the transfer of payment stablecoins issued by them.”

Legal expert Jeremy Hogan took to social media to discuss the practical implications of these updates, questioning whether companies like Ripple or Circle could actually implement such freezing capabilities effectively.

Ripple's Capability to Freeze RLUSD

“Can Ripple or Circle actually freeze RLUSD or USDC once it’s transferred? I didn’t think that was possible for either,” Hogan posted.

In response to these inquiries, Schwartz confirmed that freezing or reversing transactions for RLUSD is not only possible but also essential for compliance with legal obligations. He explained that ensuring correct balance adjustments on the ledger is crucial, especially in scenarios involving court orders that could alter these obligations.

The Clawback Mechanism on XRPL

It's noteworthy that the XRP Ledger (XRPL) introduced a clawback amendment earlier in January, following overwhelming support from community members. This functionality enables token issuers to reclaim tokens placed in Automated Market Maker (AMM) pools, enhancing their ability to adhere to regulatory frameworks. Since RLUSD is issued on both the XRPL and Ethereum blockchains, this clawback feature applies to it as well.

Federal Oversight for Major Stablecoins

The GENIUS Act also specifies that stablecoin issuers with market valuations exceeding $10 billion will be subject to federal regulations. Currently, only Tether (USDT) and USD Coin (USDC) fulfill this criteria, leading to heightened scrutiny on their operations.

Meanwhile, Ripple's RLUSD is a relatively recent stablecoin, having launched on December 17, 2024, and as of now, it holds a market capitalization of approximately 135.1 million.

As stipulated by the GENIUS Act, RLUSD will continue to be governed under state regulations; however, these standards must align with federal guidelines as well.