XRP Ledger blocks authorization bug: restricted tokens can only be returned to issuers

According to Woofun AI, the XRP Ledger developer team is advancing a protocol upgrade aimed at completely tightening token holding rights. The core goal is to eliminate the loopholes in existing rules that allow unauthorized accounts to hold restricted tokens.

This initiative directly targets institutions that issue regulated assets (such as stablecoins or tokenized funds), which usually require users to complete identity verification before establishing a “trust line” — a connection between accounts holding other people's tokens. Despite various previous evasion methods, the four code changes proposed this week will put an end to these exceptions and ensure that only clearly authorized accounts can legally hold specific tokens, thereby establishing stricter entry standards at the agreement level.

These four changes have been uniformly integrated into the network upgrade package called FixCleanUp3_5_0, and have not yet been activated on the main network. One of the key changes focuses on the automated market maker (AMM) mechanism, which requires accounts to obtain authorization for all underlying tokens in the trading pool before buying a share of the tokens in the trading pool.

After all, the share of participating in AMM is itself a token, and must follow the same compliance logic. Another amendment removed the “Trust line only requires authorization checks when the account balance is zero”, which means that even if the account does not currently have tokens, the act of receiving new tokens will trigger strict authorization verification.

According to data compiled by Woofun AI, developers have been studying these vulnerabilities, including the situation before the August 2025 fix was introduced, and the path of how tokens previously flowed into unauthorized accounts through NFT transactions. Hussein “Vet” Zangana, director of community and product at the XRP Ledger Foundation, pointed out that the core of the discussion was the security boundaries that the agreement should secure, rather than a specific list of affected users.

Notably, all unauthorised balances currently stem from payments made by the issuer itself or its authorized accounts, and the Foundation has found no evidence that outsiders are using these exceptions to create new balances.

The upgrade also introduces a more comprehensive check mechanism to ensure that XRP Ledger's current and future features are absolutely consistent in terms of licensing rules. For users who hold restricted tokens that have not been authorized by the issuer, this change is far-reaching: under the new proposal, such tokens will be restricted to only being returned to the issuer and cannot be transferred or traded in any other form.

However, this limitation is not a permanent penalty, and the issuer can approve the holder's trust line at any time, thereby returning the token to normal use. Zangana emphasized, “We have yet to know which holders obtained such balances through transactions,” which indicates that current unauthorized balances are mainly focused on testing or internal circulation scenarios rather than extensive market speculation. The Foundation characterized this work as a regular enhancement to the agreement, aimed at improving the robustness and compliance of the system, rather than responding to any specific security incident or attack.

Although FixCleanup3_5_0 includes the four important changes mentioned above, they have not yet been incorporated into XRP Ledger's main software codebase. According to network governance rules, the upgrade package still needs to go through a strict activation process after merging: it must be supported by more than 80% of the network's trusted validators for two consecutive weeks before it can be officially launched on the main network.

This high-threshold activation mechanism ensures the network's decentralized consensus, while also providing developers with sufficient time for testing and feedback. In the long run, this upgrade marks XRP Ledger's effort to find a finer balance between compliance and flexibility, providing a more reliable protocol foundation for the issuance and management of institutional-grade assets by eliminating licensing loopholes in edge cases. This is another important evolution of XRP Ledger's underlying protocol security following many previous governance improvements, and is expected to further enhance its appeal in the field of tokenizing regulated assets.