What is a Trustline?

A trustline is a feature of the XRP Ledger. It is used frequently by developers that have created or issued a new token on the XRPL. The issued token can either be an IOU token or a token with its own utility. The former can be seen as a kind of token issued on the blockchain which represents the same value as the underlying asset. To hold these tokens in your wallet (and for your wallet to recognize them) you must first connect a trustline. 

Example

When holding assets on your XRP wallet, you own a form of liability/credit from a particular XRPL token issuer. The issuer agrees to trade its liabilities/credits with you on the XRPL for corresponding assets, like XPUNKS or other (IOU) tokens.

Imagine James issues an XPUNKS token on the XRPL. If you purchase XPUNKs, you have reached an agreement with James based on the belief and trust that he will deliver the corresponding asset. On the XRPL, this is done by means of a trustline. In other words, you both agree that when you give James the necessary XRP (credit), and you have signed a trustline with the issuing address, James owes you an XPUNK token (asset) in return.

In Practice

When you keep a token in your wallet, you must trust the token issuer to pay back the credit. Since users of XRP do not want to trust just any issuer, the token owner must trust the developers or issuers of the token before they will be able to hold the issuer’s credit. 

As with the example above, you must trust James and his team before you decide to hold XPUNKS.

In practice, when you trust a token issuing account, you create a trustline. The token issuer account is often under control by the developer team, and, sometimes, the wallets owned by the group are displayed in the whitepaper. 

To buy a token on the XRPL and hold it in an online wallet (e.g. XUMM), you need to connect a trustline. Trustlines track the limit to which your account trusts the issuing account and the amount of credit from the issuing account that your account currently holds.

Example in Practice

Connecting an XPUNK trustline via XUMM looks like this:

• To connect your wallet, you need to press ‘confirm’.
• Then, to sign the connection, you will need to open the XUMM app and scan the QR code. After that, you are ready to receive XPUNK in your wallet.
• This process works with multiple projects. After connecting the trustline, you can hold and trade the token.