How Steemit could learn from Ripple's funding strategy
Yesterday we learned that Ripple has finished a second round of funding (Series B) incorporating $55 millon, bringing its total capital to about $93 millon. @steempower wrote about this news and since his wording seemed a bit confusing by stating this:
this is good news for ripple with 55 Million accounting for 20-25% of their market cap before today's rally
I had to reply:
Wait a moment. Ripple the company raised 55 millon for actual shares on the company (Series B).
XRP is just a the cryptotoken. The "market cap" you are referencing is just the "market cap" of XRP (the token) and NOT the market cap of Ripple the company, which is a private held one and could one day be listed on a traditional market.
The amount of XRP that Ripple as a company holds is certainly quite significative. It is an important asset of Ripple (the company). But it is not the only asset. Actually this rounds of funding makes Ripple LESS dependant on XRP the asset.
Ripple is engaged in the ILP (Inter Ledger Protocol), a protocol that doesn't require any kind of token to transfer value. So ILP and XRP are both assets of Ripple the company, therefore nor the "market cap" of XRP (the asset) or the XRP that Ripple holds are the actual value of Ripple the company.
The value of Ripple (the company) is greater than the XRP holdings of Ripple. And each round of funding makes Ripple less dependant on XRP.
According to Ripple's XRP Portal:
The total amount of XRP held by Ripple is 64,539,369,999 XRP (as of September 11th, 2016) , the "free float" (XRP not held by Ripple) is 35,457,828,433 XRP. The "market cap" referenced by @steempower is the free float market cap reported by coinmarketcap.com. That "market cap" is the free float ("available supply") multiplied by the XRP market price (currently $0.008048). That "market cap" of currently about $285,348,293 is "capital" outside of Ripple as a company. Is the combined XRP "wealth" held "by others" (than Ripple, the company).
But Ripple holds 64,539,369,999 XRP. Those XRP have a value too! In "steemit language" you can think of those 64 B XRP in terms of "XRP Power" (equivalent of Steem Power). According to Ripple:
we currently plan to distribute XRP primarily through business development deals, incentives to liquidity providers who offer tighter spreads for payments, and selling XRP to institutional buyers interested in investing in XRP. If market conditions permit, we expect our company to hold approximately 50 billion XRP by the end of 2021. This schedule is indicative and discretionary.
Se they plan to "Power Down" about 15 B XRP in 5 years. And 5 years from now, they will still hold 50 B of "XRP Power".
That's the way to distribute XRP into the market without actually destroying the price (and consequently destroying the value of XRP as an asset). We as Steemians are into the same logic. We hold Steem in the form of "Steem Power" because that long term commitment prevents the value of Steem to evaporate.
So there is no real "market cap" for Ripple's XRP holdings. We know the free float XRP is currently valued at
$0.008, so that's just one way to indirectly determine the value of that 64 B share of XRP's.
On the other hand, Ripple as a company has raised $55 million this time and the total capital raised is $93 million. That capital is "backed" by the value of Ripple as a company. And the value of Ripple as a company is determined by its assets. Those 64 B XRP's are just one of Ripple's assets. Some argue is the main asset, while others consider that Ripple's implementation of the Interledger Protocol is another equaly relevant "asset" from the company.
Interledger Protocol
So this is the deal: Investors on Ripple (the company) invested about $93 million. That capital is incorporated on a company that possess "assets" such as 64 B XRP, Interledger Protocol services, etc. There is no "Ripple marketcap" as Ripple the company is private held, not traded on the market.
Steemit's current state of affairs
According to coinmarketcap.com, there is a free float of 144,959,888 STEEM:
Steemit depends 100% on the capitalization of this free float. This blockchain social network costs money, servers aint free, etc. etc. etc.
But there is also Steemit Inc.. As a company, Steemit Inc. is no different than Ripple (the company). The STEEM holdings of Steemit Inc. could also be seen as assets. Steemit.com the social platform is also an asset in itself.
It is my opinion that Steemit Inc. could benefit from a "Series A" round of capitalization because it already has a proper social network working to show to investors as well as liquid crypto "assets" (STEEM) as collateral to back the incorporation of capital.
A capitalization round from Steemit Inc. (in the form of traditional shares) would enormously contribute to compensate sell pressure of STEEM.
That's the lesson Steemit Inc. could learn from Ripple, the company.
Interesting thoughts, @argsolver. It seems having an alternative fund way might work well for steemit.
Thank you!
I like the analogy in comparing Ripple lab with Steemit Inc, it's help understand how to evaluate these companies and their business model. This crypto sphere is a new can of beast and we need time, especially as investor to understand those valuations. So Ripple value is held mainly by Ripple Lab while Steem value is held by users with SteemPower.
Thanks @pnc! Ripple Labs is no longer, it's just Ripple (company rebranding). I felt the need to write this article because it was pretty clear to me that still most people involved in the crypto-scene think all crypto projects out there depend just on the value of a token.
But in reality there are entities either foundations (i.e. Ethereum, Stellar) or companies (Steemit Inc, Ripple) behind of many proyects to assure they are sustainable in time.
There was a time when Open Coin aka Ripple Labs aka Ripple was totally XRP dependant. I think Steemit Inc. is at that early stage, but could engage already in a founding round for the company as it has a working product to show (the steemit social network).
PS: I invited David Shwartz to read this article and maybe share his thoughts.
XRP is a network token that allows you to use the Ripple Network. To my knowledge, it doesn't give you "equity" or ownership in anything. Just like ETH allows you to use the Ethereum network, but somehow has become a proxy for the value of the network.
So the funding raised does not back up XRP in any way. If XRP does in fact have legal status other than "gas", please provide a link, thanks.
And as for Steemit Inc, they have private venture investors and what amounts to a secret roadmap.
I stated the same (with other words).
Ripple started as Open Coin, on the early days there was no "Series A" funding or "Series B" funding of capital. There was the Ripple Protocol and XRP. They actually "survived" daily costs by selling XRP.
Now Ripple holds 64 B XRP. It is today true that Ripple is in no need to sell XRP to fund its daily operations because they are well funded by 2 rounds of capitalization (Series A and Series B). $93 Million.
However those 64 B XRP are still and asset. And is an asset that serves as "collateral" for those Series A and Series B investors.
According to Steemit Inc., I guess they have private investors. But since there are no "funding rounds" and no public information there is no way for the market to establish how well (or not) the value of STEEM is "backed".
In my opinion each time Ripple incorporates capital it becomes less dependant of XRP (as a means to fund the company) and that is exactly what evaporates XRP sell pressure (in other terms, makes XRP more "valuable").
Other than 2 big spikes (to 10,000 sat in fall 2013 and to 7,000 sat in early 2015)... XRP has been mired around 1000 sat. Even with the recent spike, XRP is trading at 20% of the average price in 2013. So it's just a network token.
STEEM is different since Dan has clearly stated his goal is to build a "currency"... and build useful services a top of that currency.
You are entitled to your own opinion, of course, @zer0sum . However in legal terms, XRP is considered some sort of currency or asset. You have 2 examples of this:
What Ripple's Fincen Fine Means for the Digital Currency Industry
Ripple Labs Settles Lawsuit with Former Founder Jed McCaleb
So of course, STEEM or XRP are cryptokens and the US Dollar is just a paper out of thin air. However due to enforcement, subjective value and use, they have value.
I myself don't consider paper money as proper "money", but because I do have to interact with a world that enforces its use and considers that government paper money as actually having "value" I still use it. My own opinion on the matter isn't enough to turn it worthless at this moment.
How to be Ripple:
There is no "XRP premine", XRP doesn't need to be "mined". 100% of XRP already existed at the creation of the protocol and actually the total amount decreases with each input in the ledger that's why the current total amount is 99,997,191,762.49 XRP and drecreasing in real time, you can check it here: ripple charts.
Regarding the "nodes" you can install your own node, the node server is rippled. But once again, there is no "mining", so unless you want to start a gateway or have any other reason to be part of the infrastructure of the netwok you wont get any reward for just burning electricity.
Ripple doesn't follow Bitcoin "guidelines" and it's ok that it doesn't follow them, it's another concept of implementing a cryptocoin. It's not an "altcoin".
Regarding the "creator" the compromise of not wild selling was way before his departure, it was an agreement. Just like you can't sell all of the STEEM and there is the SP concept. It is unfair to call Jed the sole "creator", the Ripple concept evolved from Ryan Fugger, who passed the torch to Open Coin because he wanted the Ripple concept to evolve taking advantage of the cryptographic technology.
The origins of Ripple can be traced back by 12 years and a half, check: Ripplepay.com
OK, replace "premine" with "create a bunch of ripple out of thin air".
Replace "own the nodes" with "make there be no incentive for anyone other than you and possibly the banks you onboard to run nodes so you can control the network".
Whatever the nitty gritty details are they did sue one of the creators for selling Ripples http://www.coindesk.com/ripple-jed-mccaleb-settle-suit-over-1-million-in-disputed-funds/
And finally, they just can't wait to get in bed with Banks, so they're getting large sums of cash.
The crypto community is supposed to be happy about this - especially given their track record so far?
It takes a lot to get me to speak out against a crypto project, but Ripple has worked really hard so they've earned it.
p.s. Sure, you can become a node, but they will most likely ignore you. See https://www.reddit.com/r/Ripple/comments/4eo1le/can_i_become_a_node_in_the_ripple_network_as_an/ple.com
"Anyone can set up a validator ... This does not mean that the other validators will trust your validator though. Other validators are more likely to trust your validator if you a) release your identity and b) show consistent uptimes and good consensus over time. If you're a large organization it helps too."
Hello big banks, welcome to our decentralized network. Feel free to, you know, sit on the couch, hang out, and in general take over the place.
It's not the same as "premine". They created a protocol and XRP is the token of that protocol. There is no place for the "industry of token miners" on that protocol and there is nothing wrong with that.......except for wannabe miners of that token. Because for the consensus protocol there is no value in "creating" the token. There is no point in wasting computer cycles on the token of a consensus protocol.
But it's not only the "miners" who "hate" Ripple because they are not needed. Actually miners just ignore XRP and do their thing on tokens that need mining.
The actual "hate center" against Ripple came historically from centralized exchanges, because the consensus protocol turns those exchanges obsolete in a way. Ripple is an exchange protocol and has it's own token (XRP) and that created a conflict of interests.
People who "hates Ripple" then end up exchanging BTC for USD on a closed private ledger from centralized exchanges. It's clearly a worst option than an open ledger. That is the gap that the Ripple protocol closed on the early days making special interests on that matter really angry.
Also the main argument some years ago was that Open Coin intendend a simple pump&dump scam of the token and then vanish away. That never happened, reality proved the contrary happened. They don't stop raising actual capital instead of dumping. So they are incorporating value into the crypto-scene being the contrary as dumping for $$$.
Ripple didn't sue Jed for "selling Ripple", he was sued for not honoring an agreement*. It's like if one of the Steemit creators could manage to avoid the SP system and sell 100% of his STEEM without having to "power down". Agreements should be honored no matter if they are programed as part of the protocol or not. And regarding the going in bed with banks, Stellar is in "bed" with Deloitte, so basically following the same route at a minor scale.
I don't tend to analyse things in terms of colective thinking. Each individual should think for himself. You are free to dislike or even hate the ripple protocol and some other users may be also free to praise ripple over swift.
Anyway back to the "pump&dump" danger and to the point of this article. The point is precisely how to implement a strategy that makes Steemit Inc. less dependable of the value of STEEM for capital expenditure. It's not the same if your only income is from selling tokens on the market (STEEM) than if you fund your operations by incorporating capital in exchange of actual shares.
The fact that Steem Inc. exists leaves per se open the door to that posibility. And I think that producing a multilingual frontend for steemit.com and launching a traditional funding round for Steemit Inc. could be both extremely benefical for Steem as a whole.
It's just my point of view, my 0.02 SBD :P
For the record, I used to like Ripple. I didn't listen to the haters. It was through experience and years of being in the crypto space that I came to my current view of them. I had worked on apps for Ripple, tried to use it as an exchange, tried to do all of the things they claim one can do with it, etc. I don't care about earning money through "mining" it or anything - but the fact that there is no incentive for at least somewhat decentralized nodes/miners/witnesses/whatever is not good in my book. I believe Ripple will do what they want, as all companies do. Banks will do what they want. I'm experienced enough to know that this can't be "stopped" and so I don't actually "hate" the Ripple protocol or anything like that. BUT, there are a lot of newbies who will see that Ripple is the #3 coin by market cap, see the price spike, and plunk their earnings into XRP, etc. If no one in the crypto community speaks their mind on Ripple, then people won't be aware that there are (or depending on your perspective, are not) issues.
That being said, I do apologize for posting a negative comment on your article and next time I plan to publish my own article with an opinion instead of going all haty on yours.
Cheers.
@nonlinearone there is no need to apologize for having a different point of view. Anyway the point of my article is about a funding strategy I honestly think will do well for steemit.
Regarding JED if XRP would have be enforced by software in the form of "XRP Power" he wouldn't have make fun of the first lock-up agreement he did not honor or had to settle through court a new lock-up agreement.
Actually I suspect @dantheman was aware of that Ripple episode when he designed the Steem + Steem Power system.
Respects