According to Woofun AI, the XRP Ledger developer team is advancing a protocol upgrade designed to tighten token holding permissions, with the core goal of eliminating loopholes in existing rules that allow unauthorized accounts to hold restricted tokens.
This move directly targets institutions issuing regulated assets such as stablecoins or tokenized funds, which typically require users to complete identity verification before establishing a "trust line" 鈥?a connection between accounts for holding another party's tokens.
Although various workarounds previously existed, four code changes proposed this week will put an end to these exceptions, ensuring that only explicitly authorized accounts can legally hold specific tokens, thereby establishing stricter admission standards at the protocol level.
These four modifications have been consolidated into a network upgrade package called fixCleanup3_5_0, which has not yet been activated on the mainnet.
One key change focuses on the Automated Market Maker (AMM) mechanism, stipulating that accounts must first obtain authorization for all underlying tokens in a trading pool before purchasing pool token shares.
After all, AMM pool shares are themselves a type of token and must follow the same compliance logic.
Another modification removes the exception clause that "trust line authorization checks are only required when the account balance is zero," meaning that even if an account currently holds no tokens, receiving new tokens will trigger strict authorization verification.
Woofun AI data shows that developers have been studying these vulnerabilities, including the situation before the August 2025 fix and how tokens previously flowed into unauthorized accounts through NFT transactions.
Hussein "Vet" Zangana, Community and Product Director at the XRP Ledger Foundation, pointed out that the core of the discussion lies in the security boundaries the protocol should guarantee, rather than the specific list of affected users.
Notably, all current unauthorized balances originate from payments made by issuers themselves or their authorized accounts, and the foundation has found no evidence of outsiders exploiting these exceptions to create new balances.
The upgrade also introduces a more comprehensive checking mechanism to ensure absolute consistency in authorization rules across current and future XRP Ledger features.
For users holding restricted tokens not authorized by the issuer, this change has far-reaching implications: under the new proposal, such tokens will be restricted to being returned only to the issuer, with no other forms of transfer or trading possible.
However, this restriction is not a permanent penalty 鈥?the issuer can approve the holder's trust line at any time, restoring the token to normal usability.
Zangana emphasized, "We are not aware of any holder who acquired such balances through trading," indicating that current unauthorized balances are mainly concentrated in testing or internal transfer scenarios rather than broad market speculation.
The foundation characterizes this work as a routine strengthening measure for the protocol, aimed at improving system robustness and compliance, rather than responding to any specific security incident or attack.
Although fixCleanup3_5_0 contains the four important modifications mentioned above, they have not yet been merged into the XRP Ledger's main software codebase.
According to network governance rules, after merging, the upgrade package still needs to go through a strict activation process: it must receive support from more than 80% of the network's trusted validators for two consecutive weeks before it can be officially enabled on the mainnet.
This high-threshold activation mechanism ensures the network's decentralized consensus while also providing developers with ample time for testing and feedback.
In the long run, this upgrade marks XRP Ledger's effort to seek a more refined balance between compliance and flexibility, providing a more reliable protocol foundation for the issuance and management of institutional-grade assets by eliminating authorization loopholes in edge cases.
This is another important evolution in XRP Ledger's underlying protocol security following multiple previous governance improvements, and is expected to further enhance its appeal in the field of regulated asset tokenization.
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