Is Ripple Poised to Become the Largest Fintech Company?

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How Could Ripple Become the Largest Fintech Company?

One word: XRP.

XRP is the digital asset that Ripple created when they created the XRP Ledger. It serves as a no-counter-party digital asset just like Bitcoin or Ethereum.

xrp_symbol4

And there are 100 billion of them. While roughly 40 billion have been distributed among crypto-currency users, approximately 60 billion of them still belong to Ripple. 11

Ripple’s intended usage of XRP.

Ripple has discussed at length about their intended usage of XRP. The main use that the company intends for XRP is to serve as liquidity while bridging one fiat currency to another for banks. This idea would generally replace the entire notion of “nostro” accounts for both banks and financial institutions, as well as for large companies that do worldwide business. 12

This concept, along with it’s projected cost savings, are described in Ripple’s solution guide here, among other places.

Unlike those other nonprofit foundations I mentioned previously, Ripple has an enormous war chest of XRP to bootstrap liquidity while supercharging worldwide bank adoption.

None of the other crypto-currencies have this ability to provide their own liquidity. While some have been gifted a small amount of their network’s tokens, the sums are usually far too small to do anything but fund small development or promotion activities. And none have the ability to promote bank adoption with their foundation nest eggs. Not so with Ripple.

Banking’s new preferred digital asset – backed by a US company.

This is the part that scares away “typical” crypto investors in the West, but attracts them in the East. I’ve explained the difference in composition between the two camps, and the reasons for it. In the West, the crypto-anarchists that form the core of today’s crypto investors do not like anything that even remotely smacks of bank cooperation or a technology that bows to regulation and governmental oversight.

In Japan, South Korea, and China, however, this is viewed as a strong point. Ripple is a respected US Company, and the traditional investors in the East who are pouring capital into crypto-currencies view this as consistent with their view that an innovative product should have a strong company behind it.

You can see this in XRP’s volume. The great majority of XRP’s daily volume is from the East, not the West. 13

xrp_volume

These eastern countries see XRP for what it is: the product of a respected, large, and growing company whose technology banks are adopting. They understand the importance of Ripple opening a new office in China. They understand the importance of a Japanese banking consortium using Ripple technology – a banking consortium that comprises over 80% of all banking assets in Japan. 14

The escrow-based lockup.

Ripple has acknowledged that much of their long-term business model is tied to the value of their network’s digital asset, which implies that they also understand that eventually this digital asset will be sold. Any sale of XRP by the company would increase the market’s supply. In theory, this move could drive down the price of XRP.

In response to this market concern, Ripple decided to lock up their XRP in an impenetrable “escrow” – a feature of the XRP Ledger where XRP can be locked away for a specific time period.

Starting in 2017 (this year), 55 billion XRP will be locked away for 55 months (4.5 years). Each month, the escrow will release 1 billion XRP. Ripple will then have access to this XRP. Keep in mind that, on average, Ripple has sold only ~ 300 million XRP per month to financial institutions. They will then place any unused portion back into escrow for another 55 months. 15

xrp_distribution_curve

This results in a distribution curve that is estimated to take over 30 years to complete. The escrow ensures a gradual release of XRP into the market over time.

Remember that it’s an asset.

Despite the lockup, XRP will remain an asset on Ripple’s accounts, and this makes it very attractive to investors in the company. Because of the size of this asset, the current worth of Ripple (the company) will necessarily include the current market value of the token, multiplied by its holdings.

This results in a spectacular number currently: ~ 9.6 billion dollars.

While this market capitalization doesn’t approach the market capitalization of some other noted technology stocks currently listed on Nasdaq, it provides an example of things to come and the real possibilities that could be down the road for XRP – purely because its “foundation” is not a foundation – it’s a US-based company that has a lot of options.