Ripple's developers have been engaging with feedback and suggestions that they expand the XRP Ledger, or XRPL, to integrate functionalities such as smart contracts. The latter have become a major feature of the booming decentralized finance space, but Ripple's creators claim that a different solution is better for the payments-focused XRPL.
This solution comes in the form of what they term “federated sidechains” i.e. parallel ledgers that can support developers' experimentation and specialized interests, whether for DeFi or other use cases. Using sidechains can leave the main XRPL streamlined and efficient while expanding the functionality of the wider XRP ecosystem by offering interoperability for native smart contracts and other features.
To facilitate this interoperability, Ripple's creators are proposing a piece of “federator” software, connected on one end to the XRPL ainnet, and on the other, to one or more sidechains. Each of these function as their own blockchain but they use XRP as their main asset; moreover, the federation system supports the transfer of XRP and issues tokens between them and the main ledger.
Validators who operate at least one sidechain will be eligible to run the federator software. To integrate this new software, Ripple says it only needs to make “two trivial changes” to the operation of the XRPL network. New features on the XRPL server software will allow it to operate in a side chain but these features will not be enabled on the mainnet itself. Further outlining the federated system, Ripple chief technology officer David Schwartz writes:
"Each sidechain would have a 'trust' account on the XRPL Mainnet. This account can hold assets on the XRPL on behalf of users of the sidechain. The account would use a multisign or threshold key with the signers being the validators of the sidechain. Each sidechain validator operator registers a signing key that signs transactions on XRPL; thus, the validators of the sidechain can collectively create transactions to manage the sidechain's Mainnet account."
Each sidechain can choose to either use XRP as its native assets or have its own, new native asset. In the former case, the side chain's account on the mainnet will contain its total XRP holdings in trust for use on the sidechain. In the latter, the sidechain's mainnet account can be used to issue the new, native asset on the XRPL Mainnet.
Schwartz said that the advantages of the federated system are its low-risk approach, capacity for horizontal scaling, simple support for new blockchain experimentations and a long-term vision that can accommodate an evolving toolset and ongoing feedback on new sidechain developments.
As previously reported, sidechains have become a popular approach for blockchain developers to try out new solutions to resolving scaling issues and integrate new functionalities into established blockchain ecosystems like Ethereum.