5 min readXRP, the token, and XRPL, the ledger launched in 2012, provide an alternative solution to traditional banking for cross-border payments and allow individuals and teams to create applications on top. Ripple is a technology company that built the blockchain and created the token independent of the company. Ripple uses XRP for its products. The goal of the blockchain infrastructure is to give banks access to speedy, affordable, and straightforward cross-border transactions. As a result, it aims to compete with SWIFT, the predominant international payment system now in use by banks. Ripple raised funds in 2013 by selling digital assets to institutional investors and market participants.
The number of new accounts activated and successful transactions year-over-year show slightly flat and ~20% growth, respectively. These metrics could have a greater impact on price going forward; however, it’s important to note that these metrics are easily gamed (although we do not claim that Ripple has in this case).
Key Figures
Protocol Mechanism
The XRPL uses a trust-based validation system where network participants choose a list of validators they trust to approve transactions. This list can include known entities or community-approved validators, and participants can adjust their trusted validators based on performance and reputation. Transactions are validated when a supermajority of these trusted validators agree on the transaction's legitimacy and order in the ledger.
History
Ripple had its first real taste of being called a security in May 2018, when investor Ryan Coffey filed the first of several lawsuits seeking class-action status against the company. The price of XRP saw a decline of ~9% in the week following. The SEC developed a framework for applying existing laws and regulations to crypto tokens which led to amendments to the previously filed lawsuits and marked the first filing to which Ripple had to directly respond by addressing the facts of the case.
The heat was turned up in December 2020, when the SEC announced its plans to sue Ripple over its status as a security. In response, Ripple continued to send messages through its social media accounts and press releases in an effort to shape the narrative. Nevertheless, XRP saw its price decline ~30% by the end of the week, despite the broader crypto markets experiencing their sustained upward run since 2017.
With the regulatory threat looming in the coming months, Coinbase delisted XRP with other exchanges following suit, partners like MoneyGram stopped their relationship, and large backer Tetragon filed a lawsuit against Ripple.
Early 2021 saw an explosion in value for XRP from the lows of ~$0.21 in December 2020 to ~$1.80 by April. Ripple had won its lawsuit against Tetragon, but more importantly, the crypto bull market was in full steam and buyers of the token (dubbed “the XRP Army”) were united in numbers. In June of that same year, Ripple got another win as a judge stopped the SEC from accessing XRP legal records, but in September, the SEC got a win of its own as a judge ordered Ripple to hand over masses of Slack messages.
Following on, in March 2022, a judge voted in favour of Ripple’s “fair notice” argument that it didn't get reasonable notice that it had violated a law. That defence was contested by the SEC, but the court ruled that it was legitimate. In September, news that documents referencing a speech by William Hinman, a former SEC official where he declared Ethereum a non-security, was released, leading to a rise ~26% in a couple of weeks after.
In July 2023, the court made clear that XRP is not a security, as it was deemed not to meet the standards of an investment contract. The final judgement in this case is expected around July 2024, contingent on Ripple not kick-starting a new private placement operation. The conclusion of this case will likely have a material impact on the token price, as evident in previous legal outcomes, both in favour of and against Ripple, even though XRP and Ripple are independent of each other.
CoinShares’ View on XRP
XRP's strength lies in its robust banking partnerships and volume of cross-border transactions, significantly supported by major global financial players. However, its weakness stems from a transaction model that burns a small amount of XRP per transaction, affecting the circulating supply and sparking debates about inflation control. On the opportunities front, Ripple is well-positioned to capitalise on the expanding market for cross-border payments and the integration of XRPL in decentralised finance platforms. A potential threat is the banking industry's movement towards developing ‘in-house’ payment technologies, as opposed to using ‘crypto’ rails, which could undermine Ripple's market.
Strengths
XRP could be driven more by fundamentals, primarily the number of bank partnerships and cross-border transaction volume. Ripple’s partnerships have global reach: Santander (Eurozone), SBI Remit (Asia), SBC (Asia), and MFS Africa (Africa) are some of many players in the financial sector, mostly with regards to money movement, using XRP and XRPL.
Weaknesses
Transactions on the XRPL do not incur traditional transaction fees but instead require the sender to destroy a small amount of XRP per transaction, therefore, removing it from the circulating supply. However, an argument is that the burning ratio needs to be higher to reduce XRP’s inflation rate.
Opportunities
Further, the largest opportunity for Ripple is the cross-border payment market. The CBDC Private Ledger provides Central Banks with a way to issue and manage Central Bank Digital Currencies (CBDCs). And XRPL can be integrated into decentralised exchanges, wallets and DeFi products to exchange digital assets as well.
Threats
The banking system could find ways to keep the technological revolution of payments and settlement ‘in-house’, therefore, bypassing the demand for Ripples products and XRP.