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【The Road to Innovation in Cryptocurrency】Ripple's "pig" flying by the wind

Weisha Zhu

Summary: The Road to Innovation in Cryptocurrency 4. Ripple's "pig" flying by the wind Satoshi Nakamoto opened Pandora's box and released hope and the devil. What is hope? What is a devil? Graham once said: "Stocks are voting machines in the short run, but weighing machines in the long run." In the fourteen years since Bitcoin ...

The Road to Innovation in Cryptocurrency

4. Ripple's "pig" flying by the wind

Satoshi Nakamoto opened Pandora's box and released hope and the devil. What is hope? What is a devil? Graham once said: "Stocks are voting machines in the short run, but weighing machines in the long run." In the fourteen years since Bitcoin came out, the top cryptocurrency projects have stood the test of time, and their currency prices can undoubtedly reflect the value of the project. Analyzing the gains and losses of these projects will be instructive to those still on the road.

4. Ripple's "pig" flying by the wind

Ripple XRP was issued by Ripple in 2013 by selling it to funds and markets, but the U.S. Securities and Exchange Commission sued it. In the first trial, both sides had winners and losers, and the coin circle believed Ripple won. The SEC appealed again, and the lawsuit is ongoing. Ripple's market capitalization ranks fifth on the currency market capitalization website (Coinmarketcap). On September 1, 2023, the circulating market value will be 26.6 billion U.S. dollars. Ripple is a cross-border transfer business that uses encryption technology to compete with SWIFT international transfers. It's unique in the cryptocurrency world, and the story is fascinating. Most blockchain projects are early and rely on stories to attract people. With great technology, great entrepreneurs, and the blessing of a group of investment tycoons, it's hard not to rise. The cryptocurrency bull market that began in 2017 sent Ripple to highs. On January 4, 2018, the price of Ripple reached $3.31, and the total market value reached $331 billion. Ripple was comparable to global technology giants such as Google, Apple, and Facebook at that time. Today, Google and Apple have entered the trillion-dollar club, and Ripple's currency price is $0.5, which is only 15% of its high point. The long-term stock price reflects its value. This price valuation is still not low. Although its idea is perfect, there are problems with the business logic, but it is not difficult to solve.

Excellent people and excellent technology did not make excellent products

In 2004, Ryan Fugger founded RipplePay to build a peer-to-peer payment network that could replace the bank's financial system. Note that Fugger's peer-to-peer payment is older than Bitcoin. At the stage when Fugger was at the helm, the Ripple system could only transfer money between people who trusted each other, so at this stage, Ripple had not made much progress.

In May 2011, Bitcoin pioneer Jed McCaleb joined Ripple, bringing Bitcoin technology and concepts to Ripple. Jed McCaleb founded Mt.Gox, the world's largest Bitcoin trading platform, and eDonkey. After McCaleb joined, Ripple also completed its first power transfer, with Ryan Fugger handing over control of Ripple to McCaleb.

In 2012, McCaleb recruited another Internet finance tycoon, Chris Larsen, the co-founder of Prosper, the world's first P2P credit company and Internet Bank Electronic Loan (E-Lending) founder. Ripple's Chief Risk Officer Greg Kidd is also a big figure in American Internet finance. Kidd joined Ripple in September 2013. He served as a senior analyst on the Board of Directors of the Federal Reserve. Before joining Ripple, he co-founded the seed fund Hard Yaka and invested in Twitter and Many Internet financial companies, including Coinbase. After one round of operations, McCaleb has a talented person in Ripple technology, finance, and investment.

In October of the same year, Ripple received its first round of seed investment from Jesse Powell, the founder of the Kraken cryptocurrency exchange, and Roger Ver, known as the Bitcoin Jesus. Their technology is excellent. The author believes that one of the four major cryptocurrency technologies is cross-chain technology - cross-chain interoperability protocol (interledger); it came from their hands. They added a gateway to Ryan Fuge's protocol to form the global transfer system xCurrent. Ripple has created a distributed ledger between banks mainly to provide cross-border transactions. Whenever bank A transfers money to bank B, it can rely on the intermediary bank C for settlement so that the bank account opened by A in C and The amount in B's bank account opened by C changes. The advantage of xCurrent is that the settlement speed is fast, cross-border payment can be completed within seconds, and the fee is low. Officials claim that customers have covered at least 350 financial institutions in more than 40 countries, including MoneyGram, Merrill Lynch, Bank of America, Santander, Standard Chartered Bank, etc., all of which can use xCurrent for international settlement. According to calculations, if xCurrent is used, banks can reduce their funding costs by up to 33%.

When banks deploy Ripple's xCurrent software for cross-border transfers, the blockchain's distributed ledger technology is used, but cryptocurrencies are not required. In xCurrent's solution, these financial institutions still need to deposit funds into their overseas accounts in advance, and there is still a high cost of using funds. Ripple launched a solution called xRapid (later renamed ODL) at the end of 2018 to address this pain point. Liquidity solutions are needed to encourage financial institutions to use XRP tokens as a medium for cross-border transfers.

Ripple has launched a cross-border payment solution called RippleNet, which includes xCurrent and ODL (On-Demand Liquidity). In the xCurrent part, there is no need to use XPR, but in the ODL part, it needs to be converted into XRP for transfer, which is not what everyone is willing to do. At this time, the stablecoin has come out, which poses a severe threat to the transfer of unstable currency such as XRP. When the market saw this clearly, Ripple's story broke, so it never rose again.

Ripple XPR Value

Ripple's project has value, but what does it have to do with coins?

According to public information, 100 billion XRPs were issued, of which 20 billion were allocated to the founding team and 80 billion to Ripple. All XRP in circulation are officially sold publicly. For a long time, Ripple officials have been selling XRP in large quantities, including programmatic sales on exchanges and over-the-counter transactions for partners, to raise funds for its technology development, ecological expansion, etc.

The price of a coin is determined by the value it represents.

XRP has nothing to do with Ripple's equity; it is just the company's assets.

XRP is issued, and it is an air currency when it is published as the transaction medium of the ODL system. If you want to trade, you need to buy XRP, thereby generating demand, and at the same time, the transaction fee is used to destroy XRP. Since the transaction fee for each transaction is 0.001 cents, the amount destroyed is minimal compared with the total amount of 100 billion.

The purpose of XRP is similar to that of Ethereum. It is a medium of exchange, not a complete currency, but it should not be regarded as a security. However, the U.S. Securities and Exchange Commission believes that Ripple's sales method is illegal.

How does Ripple go to the next level?

Because of stablecoin competition, Ripple must change its strategy. Now, the exchange losses caused by customers' transfers using XPR are also compensated by Ripple to MoneyGram. In fact, Ripple's transfer business is a stable currency business and does not require XRP. Ripple's technology and financial relationships are so mature that it only requires stablecoins as bank-approved intermediaries. It will definitely not use USDT; what should we do? Its opportunity is perfect. Although Ripple is very strong in technology, finance, and investment, it has a slightly poor vision of products and has not discovered this opportunity. Solving this problem is as simple as it gets. Turn its XRP into a stable currency so that banks can use it. Its two products can be combined, and the market suddenly opens up. Its financial foundation is stronger than USDT and may become an instant success. Then, some equity coins will be issued to compensate old users, and everyone will be happy. The rise of the stake coin replaces the loss of the user's XPR. According to the analysis of USDT in the previous article, "Third, USDT is not far away from the second," the value of Tether's equity is more than double the market value of USDT.

This method is feasible, and there are two methods. Judging from the graph, XRP has been building a platform near US$0.5 since June 2022, and the historical average price is similar. That is, the midline of the historical average cost is near US$0.5. There should be little resistance for the currency price to stabilize at 0.5 yuan. If you want to compete with stablecoins, Ripple should be stabilized at $0.5. The biggest advantage is that it is easy to exchange with U.S. dollars. The second method is to bring the currency price to 1 U.S. dollar and create a stable currency.

The author prefers the first. Because the first means's loss by XRP will be reflected in the equity. The second time and opportunity cost is too high.

Stablecoins are very mature. Just refer to the Hong Kong Monetary Authority's stabilization mechanism for the Hong Kong dollar. If you don't understand, please refer to the author's third and chainless series.hk website's series of articles on stablecoins: Bitcoin U.S. dollar standard and Bitcoin Hong Kong dollar standard. This way, the XRP Ripple holds tens of billions of dollars, and Ripple may reach a higher level.

Ripple is a good business, but fighting a lawsuit wastes time. Let's settle down and do business.

Facing mainstream applications is a great opportunity for Ripple. Stablecoin is the next outlet of cryptocurrency; Ripple, the "big pig," will be blown up again and not fall.

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