Ripple’s three unsolvable mysteries

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Author | Gong Quanyu, echo

After nearly 2 years of continuous fluctuations, Ripple Token XRP has begun to show a violent rise in recent times, with the price rising to more than three times at the beginning of the month, becoming one of the most watched projects in the crypto market. The reason for the rise and XRP The value support of the market also makes the market quite curious.

In this article, the chain catcher has studied a large number of Ripple project materials and interviewed a number of industry insiders, trying to analyze Ripple’s specific model and achievements in developing the cross-border payment market, as well as the specific role XRP plays in this process, and the value support of XRP. , To uncover the true features and puzzles of Ripple that have long been unknown to the public.

01

How is Ripple’s cross-border payment doing?

The prototype of Ripple was born in 2004 as early as RipplePay, which was founded by Canadian developer Ryan Fugger that year. The original goal was to create a value network protocol that allows currency to be transmitted quickly following the TCP/IP protocol like Internet data, but it is limited The technical bottleneck has not developed significantly.

With the further development of international trade and globalization, the pain points of low efficiency, high cost, and high exchange risk in cross-border payment scenarios have become more and more prominent. The emergence of Bitcoin has made many people in the industry see the solution. The dawn of the problem.

In 2011, after selling the exchange, Jed McCaleb, the founder of Mentougou Exchange, acquired the RipplePay project from Ryan Fugger. In 2012, he and Ryan Fugger jointly formed the current Ripple Project (then called OpenCoin), which was in Jed. McCaleb became the main person in charge of the project after leaving Ripple.

In the following years, Ripple received investment from well-known institutions such as DCG, Google Ventures, IDG Capital, a16z, Standard Chartered Bank, etc., with a valuation of more than US$10 billion. At the same time, Ripple has further clarified its mission, which is to eliminate barriers in global payments and enable funds to be instantly moved in the same way as information today.

After years of product changes, Ripple has launched a cross-border payment solution called RippleNet, which includes xCurrent and ODL (on-demand liquidity). The official claims that customers have covered at least 350 financial institutions in more than 40 countries. Institutions, including MoneyGram, Merrill Lynch, Bank of America, Santander, Standard Chartered, etc.

Among them, xCurrent is a basic solution provided by Ripple for financial institutions. It is a form of real-time two-way settlement between different bank accounts. Compared with SWIFT’s one-way messaging framework, it has a two-way messaging framework that can achieve pre-verification of transactions. And rich data attachments, so it can greatly improve the efficiency of cross-border payment processing and reduce payment costs. Under normal circumstances, cross-border transfers can be realized in a few minutes.

However, in xCurrent’s solution, these financial institutions still need to deposit funds for their overseas accounts in advance, and there is still a high cost of capital use. Ripple launched xRapid (later renamed ODL) for this pain point at the end of 2018. On-demand liquidity solutions, financial institutions are encouraged to use XRP tokens as a medium for cross-border transfers.

Specifically, one financial institution only needs to convert the local legal currency into XRP, and then the other financial institution converts the received XRP into the country’s legal currency and pays it to the recipient, which can reduce the liquidity cost of pre-prepared funds. This partnership will greatly reduce our working capital requirements and generate more revenue and cash flow. Ripple’s ODL partner, MoneyGram, a well-known international remittance company, stated in the financial report.

However, although most financial institutions can complete XRP transfers within tens of seconds, it does not mean that these banks can immediately sell them as legal currencies at market prices, and losses due to currency price fluctuations will inevitably occur during this period. Also in MoneyGram’s financial report, the company said that while bringing liquidity to the ODL foreign exchange market, Ripple will pay the company a market development fee every quarter as compensation. So far, it has paid a total of 52.3 million US dollars.

瑞波的三大不解之谜

According to The Block report, two other Ripple ODL customers (PNC Bank and goLance) stated that they also received rewards from Ripple.

The foregoing information means that Ripple is still promoting the use of ODL solutions by subsidizing financial institutions. The main benefit of this measure for Ripple is to bring more liquidity to the XRP trading market. These institutions will use ODL in large quantities. Buy XRP, but it will soon be sold by another organization, and the value empowerment of XRP is still limited.

The breakthrough may be that financial institutions are willing to hold XRP for a long time, instead of buying and selling XRP only when needed. This requires the price of XRP to maintain high stability, and Ripple, which has a high degree of control of XRP, has also worked hard to achieve this in the past. a little.

02

Where is the value of XRP?

Among the mainstream crypto assets, XRP is one of the crypto assets with the highest official holding ratio. This currency does not have the private placement and mining processes experienced by other mainstream assets. All circulating XRP is publicly sold by the official. According to public information, XRP issued a total of 100 billion pieces, of which 20 billion pieces were allocated to the founding team and 80 billion pieces were allocated to Ripple.

According to public information, Ripple officials have been selling XRP in large quantities for a long time, including programmatic sales on exchanges and over-the-counter transactions for partners to raise funds for its own technological development and ecological expansion. Only official disclosures have been made since the fourth quarter of 2016. That is, through the sale of XRP to obtain 1.3 billion US dollars, about 57% of which are sold through exchanges, and the addresses of team members continue to transfer XRP to exchanges for shipment.

Some media once questioned Ripple’s official transfer of XRP to the exchange address based on statistics on the chain to be much higher than its disclosed sales data. Ripple explained in its third quarter market report this year that certain wallets used for XRP sales It also provides short-term leases to market makers, which are usually misunderstood as sales by market participants, but the XRP for these leases will eventually be returned to Ripple, but there is no actual evidence to support it.

Under a high degree of control, Ripple has the ability to control its market circulation and rise and fall by controlling the number of XRP sold. Cryptocurrency analyst Peter Brandt once tweeted using the XRP price K-line chart as an example in March 19: The motivation of the bookmaker played a role in this huge downward triangle, which shows that the market is being manipulated, and the manipulator has maintained the price at a relatively stable level.

瑞波的三大不解之谜

In addition, since the fourth quarter of last year, Ripple stopped programmatic sales of XRP on exchanges and only sold XRP to partners off-site, which is also an effective measure to reduce XRP market selling pressure.

Therefore, XRP has been one of the mainstream crypto assets with the lowest currency price fluctuations for most of the past two years, and was even jokingly called a stable currency. Many investors complained frequently, but Ripple’s ODL solution was also promoted The initial effect. According to Asheesh Birla, vice president of Ripple Products, in August this year, the transaction volume of ODL products using XRP has accounted for about 25% of the entire Ripplenet transaction volume as of the second quarter of this year.

However, there are data showing that the development status of ODL is not optimistic. According to Ripple’s official website, ODL products currently only support Mexico, the Philippines, and Australia. At the same time, the amount of XRP off-market sales to institutional customers has also fallen sharply this year, with sales in the first three quarters less than one-third of the same period in 19 years.

瑞波的三大不解之谜

As for the recent sharp increase in XRP prices , there are generally three direct reasons for changing the previous stable route. One is that Ripple officially added Bank of America to its list of top RippleNet members at the end of November, and the other is that Flare Network announced that it will be airdropped as XRP holders. Tokens, thirdly, the number of XRP active addresses has created a new high. Although these three pieces of information are not significant, XRP is generally considered to have more room for supplementary gains in the case of high market sentiment, and it has quickly become a hot currency for market speculation.

Ripple’s official increase in positions is also considered by some people to be an important reason for the rise of XRP. In October of this year, Ripple stated in its XRP third quarter market report that a total of $45.55 million worth of XRP was purchased during the quarter. This is also the first time that Ripple has publicly purchased XRP from the secondary market. XRP is an important benefit, but according to further data analysis, the aforementioned purchase behavior is actually an additional result of Ripple’s newly launched ODL credit product.

In October of this year, Ripple announced that ODL customers can start testing the use of credit lines to purchase XRP, that is, Ripple buys XRP according to the customer’s credit line and lends it to customers, and customers need to pay a certain fee for the borrowed assets.

In other words, the XRP purchase behavior in the Ripple third quarter market report is actually implemented by Ripple instead of ODL customers, and will be sent to another financial institution by the customer, rather than Ripple’s official increase in positions. However, this move may also attract more financial institutions to use ODL solutions and increase market demand for XRP.

However, even though XRP is the world’s third-highest cryptocurrency by market capitalization and has seen a sharp rise in the near future, its value support is still subject to a lot of public doubts. Compared with the functions of value storage, on-chain governance, pledge interest, gas fees and other functions of other mainstream cryptocurrencies, the use value of XRP for individuals is quite limited. Its cross-border payment scenarios are currently mainly used by financial institutions. The scene faces fierce competition from stable currencies such as USDT and USDC.

Although Ripple’s cross-border payment solution has been adopted by more than 300 institutions, this does not mean that the value of XRP will inevitably increase, and there is no anchoring relationship between the two parties.

Morgan Creek Capital co-founder Anthony Pompliano also said that XRP tokens and software company Ripple are two very different investments. For example, Ripple owns assets such as xRapid, xCurrent and XRP, as well as profits, cash flow, and investment in MoneyGram. Other indicators used for valuation. On the other hand, XRP did not create or promote its value, except for price speculation.

Some retail investors believe that by purchasing XRP, they can obtain Ripple’s financial performance. This is obviously wrong. If Ripple succeeds, it does not necessarily mean that XRP will succeed. Anthony Pompliano said, I don’t want to own an asset that may or may not exist in the future. It has no potential utility or value drive, so I can point to it and say that I am confident that it will continue.

Wang Wei, co-founder and CTO of Youzheng Liantong, said to the chain catcher: Ripple mixes the transfer and remittance function with the concept of similar equity, giving users vague imagination. If XRP is only used as a stable currency for transfers, then there is no logic to increase.

In response to various accusations from the outside world, Ripple has also tried many methods in the past few years to create more usage scenarios for XRP, including vigorously promoting ODL solutions and large-scale investments. However, these measures are also based on the funds obtained from Ripple’s large-scale sale of XRP. Tone Vays, vice president of JP Morgan Chase, also commented that Ripple relies on continuous sales compared with startups that generate liquidity through legal operations. The currency has ridiculous financial advantages .

This financial advantage enables Ripple to use a large number of subsidies to promote MoneyGram and other financial institutions to use the ODL system to improve the market purchase demand and liquidity of XDL. The relevant information has also been analyzed in detail in the previous article.

On the other hand, Ripple launched the Xpring plan to make large-scale foreign investments. According to The Block statistics, as of June this year, Ripple has invested at least US$500 million in 27 projects, most of which are related to expanding the use of XRP, such as Invested 100 million US dollars in the blockchain game platform Forte, which will use Xpring’s open source Interledger protocol and open XRP trading pairs; invested 1.5 million US dollars in the cryptocurrency ATM network Coinme, making XRP available on Coinme’s more than 2,600 ATM machines; acquisition The founder of Logos Network, a decentralized payment platform, was also appointed as the head of Xpring’s DeFi product, helping Ripple build a DeFi ecosystem based on XRP-based derivatives, loans, and futures.

03

Where is Ripple’s future?

But at present, the actual utility of the projects invested by Ripple is very limited, and it has not significantly improved the use value of XRP in the cryptocurrency market.

At the same time, it should be noted that the main RippleNet customers currently promoted by Ripple are mostly Ripple’s investors or investees, such as its investors SBI, Santander Bank, Siam Commercial Bank, Standard Chartered Bank, etc. Huijin, Bitso, etc.

瑞波的三大不解之谜

Among them, the cooperation between Ripple and SBI is the most typical. The latter has participated in multiple rounds of Ripple private equity financing. The two parties established a joint venture company SBI Ripple Asia in 2016 to promote the RippleNet solution in the Asian financial market, and have realized Japan based on this solution. Cross-border transfers with Thailand Siam Commercial Bank (Ripple investor) and Vietnam TPBank (invested by SBI). In July of this year, SBI Ripple Asia also stated that it is working with several companies to carry out limited trials and pilot projects for the ODL system, which will be launched in early 2021 at the latest.

In other words, many of Ripple’s solutions are still implemented within the scope of its stakeholders, and the number of pure external customers is not large. Trust in the financial industry is very important, including the trust of ecological participants and the public. Although there are some major international banks behind Ripple, which can indeed improve payment efficiency, Ripple’s reputation in the industry is not good, and such trust is difficult to continue. Expand to the outside. Senior industry researcher Zhang Yi (pseudonym) told Chaincatcher.

At the same time, compliance is also one of the obstacles to more applications of XRP, and cryptocurrency still does not have the legitimacy in many countries and financial institutions. Ripple’s South Korean partner Sentbe co-founder J Young Lee said this year that he had tested the use of digital asset XRP as a liquidity settlement solution. The license regulations issued by Korean regulators do not allow this, and then the company transferred And use RippleNet to connect to more banks and financial institution networks.

In order to further promote the compliance process of cryptocurrency, Ripple also launched the University Blockchain Research Program (UBRI) to fund research institutions such as Stanford University to carry out blockchain and digital payment research. Only the first batch of partners invested 50 million US dollars The total number of partners has reached 37.

Charity actions are also an important measure of Ripple trying to build a good social image. For example, Ripple officially donated US$29 million in XRP to support American public schools in March 18, and the founding team of Ripple donated to San Francisco State University Business School in April 19 XRP worth 25 million U.S. dollars, donated XRP worth 10 million U.S. dollars to Mercy Corps in October this year, plus UBRI donated a total of more than 110 million U.S. dollars.

At the same time, Ripple also hired many compliance professionals to join the team, including Ben Lawsky, former head of New York Financial Services Department and BitLicense creator, Michelle Bond, former Bloomberg head of global regulatory affairs and public policy, and former General Law of American Express Consultant Stuart Alderoty, former U.S. Treasury Secretary’s adviser Craig Phillips, etc., have made great contributions to Ripple’s promotion of its government relations and expansion of financial institution clients.

On the basis of these actions, Ripple officials are also continuing to preach and promote the use value of XRP. Ripple CEO Brad Garlinghouse recently tweeted that he believes that BTC, as a store of value, is an effective tool to resist inflation. XRP has the advantages of speed, cost and scalability, and is a suitable payment method.

The development of digital stablecoins has not yet developed to a certain extent. Many niche countries do not have credible stablecoins anchored with them, and transfers with these countries cannot be replaced by stablecoins. In addition, the issuance of stablecoins requires a large amount of assets to be stored in banks at 1:1, which cannot be used as liquid assets, high costs and low capital utilization, XRP is still difficult to be replaced. Another industry researcher Ricky Liu pointed out.

In recent years, many central banks around the world have announced their digital currency plans, which also provides Ripple with a new story space. Ripple pointed out on its official website that central banks in various countries will inevitably adopt different solutions and technologies. At present, there are no traditional financial institutions to propose solutions. RippleNet’s ODL service enables financial institutions to use XRP to achieve direct exchange of CBDCs in various countries through open agreements and The standard achieves interoperability between CBDCs. At the same time, neutral and efficient digital assets such as XRP can reduce the hegemonic influence of powerful countries and help calm the competitive environment in the international trade payment system.

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