XRP Ledger's Evolving Ecosystem and the Strategic Case for Smart Contract Adoption

The XRP Ledger (XRPL) has long been positioned as a high-performance blockchain for cross-border payments and institutional finance. However, its delayed entry into the smart contract arena has raised questions about its ability to compete with Ethereum and other EVM-centric ecosystems. By 2025, XRPL has begun to close this gap through a dual strategy: native Layer-1 smart contracts and an EVM-compatible sidechain. This analysis evaluates the long-term value implications of XRPL's delayed smart contract development and its potential to catch up in the rapidly evolving DeFi and institutional blockchain landscape.

The Catch-Up Play: Native Smart Contracts and EVM Compatibility

XRPL's smart contract journey in 2025 has been marked by two pivotal developments. First, native Layer-1 smart contracts became available for testing on AlphaNet, enabling developers to deploy dApps using WebAssembly (WASM) bytecode and transaction types like ContractCreate and ContractModify on AlphaNet. This foundational work, spearheaded by XRPL Labs, allows for flexible on-chain logic without requiring UNL approval, a critical step toward decentralization according to XRPL Labs.

Second, the Q2 2025 launch of an EVM-compatible sidechain-developed by Peersyst Technologies-has bridged XRPL's gap with Ethereum. This sidechain, which went live on June 30, 2025, supports Ethereum tools like Solidity and MetaMask, using wrapped XRP (wXRP) as a gas token and PoA consensus for scalability according to CoinDesk. In its first week, the sidechain saw 1,400 smart contracts deployed and a TVL of $120 million, signaling rapid adoption . These dual-layered capabilities position XRPL to attract both Ethereum developers and institutional players seeking compliance-ready infrastructure.

Institutional-Grade Upgrades and Real-World Asset (RWA) Tokenization

XRPL's 2025 roadmap has prioritized institutional DeFi, introducing features like Multi-Purpose Tokens (MPTs), Zero-Knowledge Proofs (ZKPs), and permissioned DEXs according to CoinDesk. These upgrades are critical for tokenizing real-world assets (RWAs), a sector where XRPL has seen explosive growth. Tokenized U.S. Treasuries on XRPL surged from $5 million to $170 million by Q3 2025, while real estate and carbon credit tokenization expanded alongside infrastructure like Ripple's RLUSD stablecoin according to CoinPaper.

Institutional adoption is further supported by advanced compliance tools, including KYC/AML credential systems and confidential tokens. These features align with the needs of enterprises and regulators, differentiating XRPL from Ethereum's more open but less structured environment according to CryptoRank. By Q3 2025, XRPL's RWA market cap hit $364.2 million, a 215% quarter-over-quarter increase, underscoring its appeal to institutional capital according to CoinPaper.

Competitive Landscape: Compliance vs. Open Innovation

While Ethereum dominates TVL ($50 billion as of early 2025) and open smart contract deployment, XRPL's focus on compliance and institutional readiness creates a unique value proposition. Ethereum's scalability and gas costs remain challenges, whereas XRPL's PoA sidechain offers low-cost, high-throughput transactions according to CryptoRank. Additionally, the pending approval of seven U.S. Spot XRP ETF applications signals growing institutional confidence in the asset according to CoinDesk.

However, XRPL's TVL ($80 million as of early 2025) lags behind Ethereum's, highlighting the need for sustained developer and user growth. The EVM sidechain's success in attracting Ethereum developers-combined with native Layer-1 features like Smart Escrows (scheduled for Q1 2026)-could accelerate this process according to TradingView. Smart Escrows will enable cross-chain bridges, DeFi protocols, and customizable NFT rules, further expanding XRPL's utility on AlphaNet.

Long-Term Value Implications

XRPL's delayed smart contract development has not been a fatal flaw but a strategic recalibration. By prioritizing institutional-grade compliance and RWA tokenization, the XRP Ledger is carving a niche in the DeFi space where Ethereum's open model may struggle to meet regulatory demands. The EVM sidechain's rapid adoption and the ecosystem's 8.9% QoQ growth in daily transactions (reaching $1.8 million) demonstrate its scalability according to CoinDesk.

For investors, the key question is whether XRPL can sustain this momentum. The 46.3% increase in new wallet addresses and 51.1% surge in NFT activity during Q3 2025 suggest strong user adoption according to CryptoRobotics. Meanwhile, the integration of Smart Escrows and institutional ETFs could drive further TVL growth and price appreciation, particularly if XRP's all-time high of $2.85 (reached by Q3 2025) is a harbinger of broader market sentiment according to CryptoPotato.

Conclusion

XRPL's delayed smart contract development has been offset by a focused strategy on institutional DeFi, EVM compatibility, and RWA tokenization. While Ethereum's head start in TVL and developer tools remains significant, XRPL's compliance-centric approach and dual-layered smart contract infrastructure position it as a viable alternative for enterprises and regulated entities. As the ecosystem continues to mature-bolstered by infrastructure upgrades, ETF approvals, and growing TVL-XRPL's long-term value proposition hinges on its ability to maintain this institutional momentum while attracting a broader developer base. For investors, the XRP Ledger's evolving ecosystem represents a compelling case study in how delayed innovation can be repositioned as a strategic advantage.