Author: Peyton, Core Builder of LYS Lab
Over the past week, major media platforms have been frequently flooded with news due to the explosion of XRP market, with a monthly increase of about 400%, and multiple positive news coming one after another:
Macroeconomics: Regulatory relaxation and policy rent-seeking
Policy environment : In November, Trump, who advocates crypto-friendly policies, was elected as the 47th President of the United States and plans to establish a cryptocurrency advisory committee. Ripple is actively seeking a seat on this committee. In addition, Ripple will It donated $25 million to establish a super PAC called Fairshake, demonstrating its strategic foresight in policy rent-seeking and compliance layout.
Regulatory changes : In the same month, current SEC Chairman Gary Gensler revealed his intention to resign around the time Trump takes office, and the market is looking forward to the policy inclinations of the new SEC Chairman.
Judicial Progress : There has also been positive progress in Ripple-related litigation, with Judge Phyllis Hamilton approving the final judgment on the resolved class action lawsuit and suspending other pending cases. This decision clears the way for the trial to begin on January 21, 2025. It has removed obstacles and enhanced market confidence.
At the micro level: institutional cooperation and product expectations
Stablecoin products : In November, the New York Department of Financial Services preliminarily approved Ripple to launch the stablecoin RLUSD, which was scheduled to be officially launched on December 4. (However, Ripple subsequently announced on December 5 that the launch would be postponed.)
Institutional cooperation : In late November, Ripple announced a partnership with Archax and British asset management company ABRDN PLC to launch the first tokenized money market fund on the XRP Ledger.
ETF application : As of early December, several institutions, including Bitwise, Canary, 21 Shares and WisdomTree, have submitted applications for spot XRP ETFs, injecting more imagination into the market.
As of December 8, 2024, XRP is now trading at $2.55, and has not yet recovered its 2018 all-time high of $3.84. The author is very interested in this sharp rise in XRP. Looking back at history, XRP has repeatedly jumped to the third place in the market value of crypto assets. Can this market trend continue? Is there still an opportunity to buy in the future? Focusing on these questions, this article will try to make a brief analysis of XRP in order to provide a reference for investors.
Research objectives
This paper attempts to study and answer the following main questions:
Ripple's business model and its impact on XRP valuation : What is Ripple's business model? Does this business model play a role in XRP's valuation logic? What is its team and financing background?
Current development status of XRPL : How is XRPL developing? What are its characteristics compared with other public chains? What is the current on-chain data? What narrative and future development of XRPL are worth looking forward to?
XRP's economic model and token valuation : What are XRP's economic model, token utility, and valuation level? Finally, based on the answers to the previous questions, we will explore whether XRP's current increase is likely to continue and what obstacles it faces.
Ripple: Global cross-border payment network company
Project Positioning
Crypto Solutions for Business
Ripple is a global cross-border payment network created by Ripple Labs. It is based on distributed ledger technology and aims to provide secure, instant and almost free global financial transaction solutions. As a leading provider of digital asset infrastructure, Ripple is committed to The Ripple platform is dedicated to helping the financial services industry modernize its financial infrastructure. Through the Ripple platform, users can not only make real-time cross-border payments, but also participate in tokenized and digital asset transactions while ensuring compliance with relevant regulatory compliance requirements.
Team Background
Brad Garlinghouse is the CEO and board member of Ripple. Prior to joining Ripple, he served as CEO of Hightail, a file collaboration platform, President of Consumer Applications at AOL, and held several senior positions at Yahoo.
Chris Larsen is the co-founder and executive chairman of Ripple and currently serves as an advisor to data science company Distilled Analytics. Prior to founding Ripple, he served as CEO of P2P lending platform Prosper and led online lending company E-LOAN.
David Schwartz is the CTO of Ripple and the chief architect of XRP Ledger. He is known as "JoelKatz". Prior to this, he served as the CTO of Santa Clara software company WebMaster Incorporated and developed encryption for CNN, NSA and other institutions. Cloud storage and enterprise messaging systems.
Monica (Appelbe) Long is the President of Ripple and previously served as Senior Vice President of Marketing and General Manager of RippleX. Throughout her career, she has been committed to driving deep changes in the financial industry for technology companies, working in corporate communications at Intuit and for multiple Provide support to customers in the field.
Stuart Alderoty is the Chief Compliance Officer of Ripple and has over 30 years of legal experience, specializing in financial services and regulatory matters. He has held leadership positions at CIT Group and HSBC North America Holdings, and has also provided legal counsel to American Express.
Financing Background
Ripple is a private investment company. The company has completed five rounds of financing, including two angel investment rounds, one seed investment round, one A round, one B round and one C round. See the table below for details:
Development History
It is worth noting that Ripple has faced investigations and lawsuits from regulators many times, such as being fined for unauthorized sales of XRP in 2015 and the SEC accusing it of unregistered securities issuance in 2020.
These challenges not only consumed a lot of resources (more than $100 million in legal fees), but also pushed Ripple to adjust its operating model and compliance strategy (such as obtaining BitLicense and Singapore central bank licenses), and prompted it to seek regulatory policy changes (such as donations). for Fairshake's super PAC).
Business model and product matrix
Ripple requires people to obtain permission to use it, which means that it is mainly banks and financial institutions that use the blockchain. The goal here is to provide a way for financial institutions to transfer money internationally without using the SWIFT system.
The products listed on Ripple's official website include: direct payment, on-demand payment, asset custody and stablecoin. They are introduced below. Among them, only on-demand payment ODL may be attractive to C-end individuals.
Direct
In this product, Ripple is responsible for paying beneficiaries, managing payment partners, providing funds to payment partners, and paying fees in exchange for paying beneficiaries.
The entire payment process is shown in the figure below:
The sending client (Node 1) enters payment information in the Ripple Payments UI.
The intermediary Ripple (Node 2) verifies the transaction. If the risk and compliance checks are successful, Ripple approves the transaction.
The payment partner (Node 3) now validates the transaction. If their compliance check is successful, they will approve the transaction.
XRP will be transferred and converted into the destination country’s currency and distributed by the payment partner.
Payment partners complete payments by sending funds to recipients.
Special Note: To set up Ripple as a payment provider, customers no longer need to buy, sell or own XRP!
On Demand Payment (ODL)
ODL, the full name of On-Demand Liquidity, uses XRP as a transition currency to obtain liquidity on demand and transfer funds in real time. This product is still mainly B2B, but it may also attract some C-end individuals.
ODL's user interface is based on the peer-to-peer distributed application RippleNet, which maintains a virtual ledger to simulate Nostro and Vostro accounts and relationships, consisting of a two-way messaging layer and a settlement layer. RippleNet can be integrated with payment systems using some API operations. Funds are copied to a RippleNet virtual account using API operations instead of accessing a financial institution’s core banking system.
RippleNet can access liquidity on the XRP ledger using Ripple’s ODL (On-Demand Liquidity) product. RippleNet is deployed in a Ripple-hosted cloud environment and does not require customer maintenance.
Taking personal payment as an example, the payment process is as follows:
Ripple deposits the XRP into the sender’s designated wallet.
The sender retrieves and accepts the quote using RippleNet API operations.
RippleNet transfers XRP from the sender’s wallet to the receiver’s wallet.
The payee pays the beneficiary in fiat currency.
The receiver liquidates the XRP into fiat currency.
Ripple issues an invoice summary to the sender initiating the payment.
Custody
Ripple Custody is described as an important software infrastructure for protecting, transferring and settling tokenized financial assets. The product is mainly aimed at enterprise users.
The integration of XRPL’s tokenization capabilities enables businesses using Ripple Custody to handle a variety of assets, including cryptocurrencies and fiat currencies in addition to real-world assets. It also facilitates the issuance and secure transfer of digital assets from the platform, while Providing access to the XRPL decentralized exchange for efficient trading of tokenized assets.
Stablecoin (RLUSD)
Ripple first announced plans to launch RLUSD in April this year.
In June, Ripple acquired Standard Custody & Trust Company, a limited purpose trust company chartered by the NYDFS.
In August, Ripple began beta testing RLUSD on the XRP Ledger and Ethereum mainnet. At the time, the company also announced plans to expand the stablecoin to other blockchains. In a statement, Ripple said: “We are committed to providing trust. There is a clear demand for a stablecoin that offers value, stability, and utility. Once RLUSD is available, Ripple will use RLUSD and XRP in its cross-border payment solutions to serve its global customers and significantly improve their experience.”
In October, Ripple announced that it had partnered with top exchanges to offer RLUSD to users. This includes Uphold, Bitstamp, Bitso, MoonPay, Independent Reserve, CoinMENA, and Bullish. Its liquidity is supported by marketplaces B2C 2 and Keyrock.
In late November, Fox Business reported, citing people familiar with the matter, that the stablecoin will receive approval from the New York Department of Financial Services (NYDFS) and could be ready for launch by December 4.
According to its official documentation, the RLUSD stablecoin contract is planned to be deployed on XRP Ledger and Ethereum.
In terms of stability mechanism, each RLUSD token is backed by US dollar deposits, US government bonds and cash equivalents. Ripple has committed to publish a third-party audit certificate of reserve assets conducted by accounting firm BPM every month.
Value decoupling
Is the value of XRP really tied to Ripple’s core product?
Let's review Ripple's current product architecture:
Ripple Payments Direct : According to official documents, customers do not need to buy, sell or own XRP. I think this means that all good news related to this business (such as cooperation with XX Bank and XX Company, etc.) has nothing to do with XRP tokens. .
Ripple Payments ODL : ODL uses XRP as a bridge currency to obtain liquidity on demand and transfer funds in real time. In this scenario, XRP is used as a medium for fund conversion, involving the buying and selling of XRP, which seems likely to have an impact on XRP has some buying support. However, according to the data in Ripple's historical quarterly reports compiled by the author, the result of ODL business is the net sale of XRP tokens, and the amount of XRP sold in the business is often higher than the amount of XRP repurchased. In a 2017 article , TechFlow analyzed that "in fact, it (referring to ODL) costs much more, so without a lot of compensation from Ripple, institutions do not want to use this product", "Currency payment institutions become Ripple's sales of unregistered XRP Another channel for
Ripple USD (RLUSD) : In cross-border payment solutions, customers should be more inclined to choose stablecoin RLUSD as a payment solution after the launch of RLUSD in order to reduce exchange losses, making it more difficult to believe that the launch of this business can Empowering XRP .
Note:
ODL-related sales include XRP sales to support ODL (including credit lines) and key infrastructure partners;
Net ODL related sales = total XRP sales - total XRP buybacks;
Ripple seems to publish ODL business data only in the 2020Q2-2023Q1 time period, and only the total amount of XRP tokens held by Ripple and the total amount of XRP tokens in escrow accounts in 2023Q2 and beyond.
In summary, I think that at this stage, Ripple’s core business logic does not seem to provide much buying basis for XRP , and Ripple is actually releasing XRP through channels such as account custody and ODL business, so it cannot be simply Ripple's various business expansions are seen as positive for XRP tokens. Only those collaborations that actually plan to develop new businesses on the XRPL public chain are real good news. For example, last quarter, Meld Gold announced a partnership with Ripple to replace the The introduction of gold and silver assets into XRPL has indeed enriched the types of assets on the chain and increased network transaction fees.
The problem of decoupling team business and token value is actually widespread, and even appears in many well-known projects. For example, UNI tokens before the announcement of dividends are an example, but the price trend of these tokens is often affected by "superficial" The impact of good news. Regarding this phenomenon, the author would like to put forward some crude opinions:
Explanation 1: If we believe that the market is not completely efficient and participants are not completely rational, then thanks to the close relationship between Ripple and XRP tokens in terms of publicity and corporate image, the good news from Ripple officials may have "misled" investors. This increases the possibility of XRP rising.
Explanation 2: If the market is efficient and participants are rational, then why is the price of XRP tokens rising? It may be that Ripple officials have provided certain financial support to the XRPL public chain and foundation and other related entities to be introduced below. , talent support, etc. Although these supports are unlikely to directly support the purchase of XRP, in the long run, this is a positive for the ecological development of the XRPL public chain, and in turn for the XRP token. The market may just be putting the XRP token in advance. This long-term positive effect is reflected in the price of XRP tokens.
Both explanations are possible. In short, although Ripple's core business logic does not directly enable XRP price increases, it can play a supporting role through other channels. I think we should not underestimate the impact of Ripple's good news on XRP prices. Influence.
XRP Ledger: High-performance blockchain for B2B
Project Positioning
On the XRPL official website it says:
The XRP Ledger is a decentralized public blockchain built for business.
One of the main advantages of XRP Ledger is its fast and efficient consensus algorithm, which can settle transactions within 4 to 5 seconds while processing up to 1,500 transactions per second, suitable for daily payments and cross-border transactions for enterprise customers. Transactions and remittances.
Development History
Note: The XRP Ledger client software was formerly known as rippled, and is written as XRP Ledger here for convenience.
The development history of XRPL reflects the balance between its technology orientation, market demand and decentralized ecological construction. It has gradually evolved from a basic payment solution to a multifunctional and open blockchain ecosystem with good industry Adaptability and innovation.
Early stage (2012-2016): Construction of system infrastructure, including basic functions such as delayed payment, escrow accounts and strict transaction controls.
Mature stage (2017-2020): Introducing advanced features such as multi-signature, history sharding, account deletion, and dynamic reserve adjustment to make the system more efficient and adaptable.
Diversification stage (2021-present): Supports functions such as NFT, automated market makers (AMM), cross-chain bridges (XChainBridge) and decentralized identifiers (DID), showing a trend of ecosystem expansion and diversification.
Currently, the main market-level applications supported by XRPL include:
Fungible token standards and DEXs for CLOB and AMM;
Non-fungible token standards and NFT markets;
Infrastructure such as XRP sidechain, cross-chain bridge (XChainBridge amendment), price oracle, DID, etc.
It is worth pointing out that XRPL has a built-in CLOB DEX (central limit order book decentralized exchange), unlike other networks that use smart contracts to build DEX. The benefits of a native DEX are fewer trust assumptions and liquidity integration, Rather than the inherent vulnerabilities of smart contracts. Although XRPL has only one CLOB, multiple markets (also called gateways) provide users with access interfaces. These markets share liquidity and provide a convenient operating experience for ordinary users.
Technical features
Trust Lines and Reserves
All on-chain homogenous tokens other than XRP are stored in accounting relationships called “Trust Lines” that connect the accounts of two parties. All transfers of homogenous tokens are carried out along the trust line.
Each trust line is a two-way relationship consisting of:
The identifiers of the two accounts connected by the trust line.
A single shared balance that is positive from the perspective of one account and negative from the perspective of another. The party with the negative balance is called the “issuer” and can control some properties of how these tokens behave. .
Various settings and metadata. Each of the two accounts can control its own settings on the trust line. Most importantly, each end sets a limit on the trust line, which is 0 by default. In general, the balance of each account (from a trustline perspective) cannot exceed the limit of that account, but trustlines can be created implicitly through certain transactions, such as when purchasing tokens on a decentralized exchange.
Trust lines primarily prevent other people from holding tokens they don’t want.
Since trust lines take up space in the XRPL, trust lines increase the amount of XRP that an account must reserve. When an account has more than 2 trust lines, it may be charged a trust line reserve.
This reserve requirement is designed to prevent junk data from filling up the ledger. This data needs to be replicated throughout the network and maintained by all servers in the system. The base reserve (currently 10 XRP) specifies the minimum amount of XRP that must be sent when a new account is created. ; Owner reserves (currently 2 XRP per item) will increase the account's reserve requirement on a per-item basis based on the additional objects the account holds in the ledger state data (such as quotes, trust lines, and escrows). The current reserve requirement is The vote took effect on September 19, 2011.
Rippling
Rippling occurs when addresses are linked by a trust line that uses the same currency code. For example, if Alice owes Charlie money, and Alice also owes Bob money, then the trust line is represented as:
If Bob wants to pay Charlie $3, he asks Alice to transfer part of Bob’s debt to Charlie, represented by the trust line as follows:
The process by which two addresses pay each other by adjusting the trust line balance between them is called “Ripple Settlement”, where two addresses pay each other by adjusting the trust line balance between them.
The No Ripple flag can be set on a trust line. When two trust lines have No Ripple enabled for the same address, payments from third parties cannot be made to Ripple through that address on those trust lines. This prevents liquidity providers from using Accidental transfer of balances between different issuers of the same currency code.
Hooks
Although XRPL does not have a smart contract in the strict sense, the Hooks function passed in the Hooks amendment (similar to ETH's EIP, BNB's BIP, etc.) can affect the behavior and process of transactions with small and efficient code segments. Logic can be executed before or after a transaction.
As of December 7, 2024, the amendment is still in the development stage and has not yet been launched.
Customized sidechains
For example, you can add a smart contract layer, add Ethereum Virtual Machine (EVM) compatibility, use custom ledger types and transaction rules, and more.
PoA consensus mechanism without incentives
One of the main advantages of the XRP Ledger is its fast and efficient consensus algorithm, which can settle transactions within 4 to 5 seconds while processing at a throughput of up to 1,500 transactions per second. According to XRPScan data, the actual TPS peak occurred at On December 31, 2023, it reached 329.
The developers behind the XRP Ledger believe that Proof of Work (PoW) wastes energy and is only really useful for initial distribution and resolving double spends. The core developers concluded that the real charm of Bitcoin lies in the public disclosure of transactions and status, and Instead of a PoW consensus mechanism, they challenge the dominance of PoW by building an energy-efficient alternative called XRPL.
XRPL uses the Proof of Association (PoA) consensus algorithm - formerly known as the Federated Byzantine Consensus Protocol. PoA requires each node to set up a list of trusted nodes that it will rely on to reach consensus. This list of trusted nodes is called the unique node list. (UNL). Validators cannot rely on financial means alone to gain access to the consensus process, and must first gain the trust of other nodes. Many nodes use one of the default UNLs to set up their own trusted nodes. The default UNL is the XRPL Foundation, Ripple, and Coil recommends a list of nodes as trustworthy, but nodes can choose any list of validators they deem trustworthy.
During the operation of the network, each server will listen to the feedback from the validators it trusts; as long as enough validators (more than 80%) agree that a certain set of transactions should be executed and the generated ledger is correct, the server will If consensus is not reached, the validator will modify its proposal to be closer to the suggestions of other trusted validators, and repeat this process for multiple rounds until consensus is reached.
Additionally, unlike other decentralized ledgers, XRPL does not provide direct economic incentives to contribute to the consensus process by running a validator. Other blockchains offer direct incentives, such as rewards for mining and staking or trading advantages. Instead, The official claim is that "the lack of direct incentives for XRP Ledger validators attracts natural stakeholders." (This will be complained about later.)
Compared with Proof of Work (PoW) and Proof of Stake (PoS), PoA has the following advantages:
Lower hardware requirements, resulting in reduced electricity and operating costs, make running a validator node cheaper than PoW mining.
Block generation does not directly depend on the participant with the most capital, unlike PoS.
There are no reorganizations (i.e., blocks are changed after verification).
In addition, PoA also has some potential disadvantages:
Since PoA does not require high external costs or locked capital, the ability to economically punish malicious actors is weaker.
Although it is possible to retaliate by severing validator connections or removing the node from the UNL (Unique Node List), the attacker will not face financial loss.
PoA implementations on XRPL are not as decentralized as mainstream PoW or PoS chains in terms of block generation nodes. This may be because PoA lacks economic incentives for participation.
Fee Type
The fees on XRPL mainly include:
Transaction cost: A tiny amount of XRP destroyed when sending a transaction. This fee varies with network load.
Reserve requirement: The minimum amount of XRP an account must hold. This amount increases as the number of objects an account owns in the ledger increases.
Transfer fees: Optional fees. The issuer can choose to charge a percentage fee when transferring the issued currency to other addresses in the XRP Ledger.
Trust line quality: Optional fee. Allows accounts to set balances on their credit lines above or below par. This may result in situations similar to charging a fee.
On-chain data
XRPL’s current core business is still in homogeneous tokens and decentralized exchange-related services. Considering its public chain attributes, we can focus on the total locked value (TVL), the number of active traders, and the assets on the chain. The core indicators include quantity, on-chain asset market value, number of trust lines, transaction volume, and transaction fees (network revenue).
For a more detailed analysis, I recommend further reading Messari’s article, which is available on TechFlow: Messari XRP In-depth Report: Q3 Native Smart Contract Proposals Hit a New High, Daily Trading Volume Increased 94% MoM - TechFlow TechFlow (https://www.techflowpost .com/article/detail_22024.html)
Total locked value
The above chart shows that the overall locked amount of XRP has been increasing since the beginning of 24 years, reaching a peak of about 15M (15 million) around the beginning of November. The locked amount has decreased since then (probably because some LPs cashed out), but it still remains at 10M (10 million) or more.
The amount locked in the AMM pool is much smaller. It has been growing rapidly since late October, but on December 8, 2024, it only reached about 10K (10,000) XRP.
Daily Active Users
This refers to the number of active (independent) accounts on the XRPL chain.
As of December 8, 2024, XRPL's latest daily activity reached a record high in early December (note that this data in XRPScan has only been recorded since May 2022), which is 105,956. The daily activity in the new week has decreased, but it is still Maintain at historical highs.
Daily Trading Volume
As of December 8, 2024, the number of daily transactions on the XRPL chain also remained at a high of around 2 million, but it was less than the peak of over 6 million at the beginning of 2024 (Messari analysts believe that this may be related to the inscription activity that began at the end of 2023). Since XRPScan has been recording this metric since 2013, we can take another look at where these numbers stand in the life cycle of XRPL.
It can be seen that as of December 8, 2024, the latest daily transaction volume of XRPL is generally still at a high level in its entire life cycle. In terms of peak, the daily transaction volume of over 6 million has exceeded the previous bull market of about 5 million. As for the trend, it is also about hundreds of thousands higher in this bull market.
It is worth pointing out that the number of daily transactions of XRPL also maintained a certain level during the bear market, and even slightly higher than that during the previous bull market. This shows that the number of daily transactions of XRPL generally keeps rising regardless of bull and bear markets. trend.
Daily transaction volume
Because there are many extreme values in the actual data, the vertical axis in the above figure is logarithmically smoothed. It can be seen that as of December 8, 2024, the XRPL transaction volume remained at 1 million in most periods. After breaking through the $10 million mark at the end of November 2024, it remains at that level.
According to the above picture, we can clearly see the proportion of DEX and CEX transaction volume. Since the data was available in early August 2022, CEX has almost instantly taken the leading position. CEX transaction volume has dominated in most of the time periods since then. There were some periods of time when the share of DEX increased significantly for a short period of time, which may be the result of the meme craze.
Daily transaction fees
As of December 8, 2024, transaction fees remained at a few thousand XRP for most of the time, which was very cheap in terms of the dollar value at the time. The "spike" in the figure did not correspond to any transactions. I am not clear about the time and reason for the occurrence of the extreme values in the numbers.
Token quantity
Starting from the end of October 2024 (when the US election was coming to an end), the number of assets on XRPL began to surge, reaching 12,428 on December 8, 2024. During the rest of the period, the number of assets grew slowly.
Token Market Value
In terms of token market value, there was also a breakthrough in late October and early November (when the US election was drawing to a close), and it briefly reached a historical peak of $393.96M on November 22. On December 8, 2024, this figure was $347.33M.
According to Messari’s report, at the end of the third quarter, the top tokens on XRPL by market capitalization were as follows:
Sologenic ( SOLO ) has a market cap of $34.3 million and 228,000 holders. SOLO is primarily used to pay transaction fees on the Sologenic Gateway.
Bitstamp BTC ( BTC ) has a market cap of $12.5 million and 4,500 holders. Bitstamp BTC is a wrapped version of Bitcoin offered by Bitstamp.
Gatehub Fifth ETH ( ETH ) has a market cap of $11.3 million and has 26,000 holders. Gatehub Fifth is a wrapped version of Ether provided by GateHub.
Coreum ( CORE ) has a market cap of $8.9 million and 71,000 holders. CORE is the native token of the Coreum sidechain, also developed by the Sologenic team.
XRP: Economic Model and Valuation Level
The XRP token is the native token on the XRP Ledger (XRPL).
Economic Model
Supply cap: 100B (100 billion).
Distribution ratio: 20% of the tokens were distributed to the three founders Jed McCaleb, David Schwartz and Arthur Britto, and 80% were distributed to the later Ripple.
Inflation mechanism: None. This means that the emission of XRP tokens is essentially determined by market supply and demand. As a giant, Ripple’s emission (including escrow lock-up and immediate availability) is particularly noteworthy.
Deflation mechanism: Transaction fees are destroyed. Nearly 13 million XRP have been destroyed since the network was launched. Due to low transaction fees, the destruction rate is low.
Starting from Q1 2023, Ripple will publish the amount of XRP emitted in its quarterly report. The XRP owned by Ripple is divided into two categories: XRP currently available in its wallet, and XRP locked by ledger custody. For the latter category, Ripple This XRP cannot be accessed directly. This type of XRP has been emitted since December 2017. XRP that has not been purchased at the end of the month will be returned to the new smart contract.
Note: Total amount of XRP reduction = Total amount of XRP available in the wallet this quarter + Total amount of XRP locked in custody this quarter - Total amount of XRP available in the wallet last quarter - Total amount of XRP locked in custody last quarter
It can be seen that during the period of 23Q1-24Q3, Ripple reduced its holdings of XRP tokens by more than 800M (800 million) every quarter, with a value of almost more than 400M (400 million) US dollars.
In fact, we can again see the problem of PoA from here: the previous document claims that "the lack of direct incentives for XRP Ledger validators attracts natural stakeholders", and Ripple, as a highly controlled whale, sells XRP and acts as a disguised XRPL network. The inflation mechanism is actually similar to including the incentives given to validators in the PoW or PoS consensus protocol into their own income. There is no incentive for validators who participate in network maintenance, which is not very profitable from a purely commercial perspective. feasible.
Token Utility
XRP has no special use. It is mainly used to pay various fees on the XRPL network, purchase various on-chain assets, etc., acting as a medium of transaction.
Token Valuation
Select the competitor Stellar Network ($XLM) and apply the relative valuation method. Note that although the two products have certain similarities, there are still certain differences in target customers, inflation mechanisms, etc. XRP is designed to serve financial institutions. needs, and XLM is designed to serve the needs of individuals and small businesses, especially in developing countries.
In terms of economic model, although Ripple's XRP emission is essentially equivalent to the network inflation mechanism at this stage, there is no new XRP issued, while in the economic model of Stellar Network, a small portion of the newly created XLM is distributed to incentivize participation in the network. In short, please note that the valuations here are only for reference and may not be completely accurate.
Note:
In the above table, the annualized cost of XRP is calculated based on last month's cost data from XRPScan and price data from CoinMarketCap and The Wall Street Journal. The other data are all from Tokentermianl.
P/F is FDV or MC divided by the annualized fee for the last 30 days.
It can be seen that compared with its competitor XLM, XRP's PF ratio is even lower and its price is more cost-effective. According to the current XRP circulation quantity of 61,935,346,471 (XRPScan), the corresponding XRP token price can be calculated to be approximately $3.4957. This shows According to the valuation method here, the market value and price of XRP may still have some room to rise. Considering that the ATH of XRP price is $3.84, the valuation in this article may be relatively conservative.
Future Outlook
Ripple IPO Expectations
On November 18, 2024, according to U.Today, SBI Holdings CEO Yoshitaka Kitao suggested that Ripple, a well-known enterprise blockchain company, should consider retiring after its legal issues with the U.S. Securities and Exchange Commission (SEC) are resolved. Preparing for an initial public offering (IPO).
Ripple CEO Brad Garlinghouse has previously mentioned that going public is not a priority for the company, citing its strong financial position as a reason to delay. However, he did not completely rule out a future IPO. In 2022, Garlinghouse said Ripple would explore an IPO after the SEC lawsuit is concluded, and expressed Ripple's vision of eventually becoming a public company.
On December 4, 2024, Barron's Weekly reported that the Trump administration is considering opening the initial public offering (IPO) market to cryptocurrency companies, further opening up the market's imagination.
As mentioned above, although Ripple's IPO business is not very relevant to the value of XRP tokens in theory, based on the historical market reaction to such favorable news, it can be expected that the good news of Ripple's future IPO will temporarily boost the value of XRP tokens. Coin price.
Institutional adoption
Ripple's initial strategy was to position itself as a mature entity in the cryptocurrency space, avoiding associations with the anarchist and libertarian culture that prevailed at the time. Ripple's goal was not to replace the traditional financial system, but to promote the adoption of financial technology companies and banks. XRP is used to improve the existing financial architecture. This strategy has always been the core of Ripple's market layout.
With Trump's election as the 47th President of the United States and the relaxation of the crypto regulatory environment, Ripple's long-standing compliance strategy and policy rent-seeking initiatives are expected to lead to more institutional adoption of XRPL. This trend is expected to bring Benefits include richer on-chain assets and more transaction fees, and further drive up expectations for the XRP token.
In addition, in late October, Ripple CEO Garlinghouse said in an interview with Bloomberg TV: "I think it is inevitable that the XRP ETF will be approved." He added, "There is a very strong demand for this asset class from both institutional and retail investors. Strong." As of early December, several institutions, including Bitwise, Canary, 21 Shares and WisdomTree, have successively submitted applications for spot XRP ETFs, bringing more imagination to the market.
Ecosystem Expansion
The ecological expansion of the XRPL public chain can be viewed from two aspects. On the one hand, especially since 2020, various applications on the XRPL chain have become more mature and complete, and are no longer just simple transactions and transfer functions. This point has also been mentioned in the previous article. Mentioned.
On the other hand, XRPL is actively improving its interoperability with other blockchains. For example, the XChainBridge amendment in the XRPL 2.0.0 version launched in January 2024 introduced the cross-chain bridge function. In the quarter, the decentralized cross-chain communication network Axelar integrated with XRPL, connecting the XRPL ecosystem with more than 60 blockchain networks, including Ethereum and Cosmos ecosystems. Connectivity makes it easier to access liquidity from multiple high TVL networks.
Potential risks
Ripple’s business logic is decoupled from the value of the XRP token
This issue has been mentioned above. Under optimistic sentiment, it may not cause too much problem in the short term, but under pessimistic sentiment or long-term perspective, this decoupling phenomenon may be magnified and have adverse effects.
Historical issues in economic model and consensus mechanism design
As mentioned above, although the scalability of XRPL is strong enough under the PoA consensus mechanism, there are still some problems. At present, the substantial inflation mechanism of the XRPL network is more reflected in Ripple as a "whale" or "banker". "It keeps dumping XRP into the market, rather than incentivizing network participation by rewarding validators like other blockchains. This mechanism easily leads to bearish sentiment in the market. Imagine if, when the price of Ethereum rises, we learn that The Ethereum Foundation or Vitalik continues to sell ETH, which will obviously cause similar concerns. Although Ripple has set up an account custody mechanism and publicly reports the amount of XRP it holds every quarter, this selling behavior is still criticized from time to time. .
Insufficient narrative logic to continue to attract C-end consumers
This is related to the positioning of Ripple and XRPL. In a business model that is mainly B2B, how to continuously attract retail investors or other on-chain users is worth discussing. The author noticed that the ecology and applications of XRPL are indeed gradually enriched, but compared with The user experience of other chains is still far behind. Let us wait and see whether it can attract more community members to participate in the future.
Summarize
The rise of XRP has exceeded many people's expectations. I admit that XRP tokens do have some shortcomings - such as being regarded as "old coins" and Ripple's high degree of control - but we cannot ignore an important narrative logic of this bull market. It is institution + compliance, and Ripple, the company behind XRP, has been working on this for many years. This round of price increase can be described as "following the trend". Moreover, surprisingly, the XRPL chain is not a dead chain without people, but its The business model is somewhat distant from ordinary retail investors, which leads to a deviation in public perception. With the arrival of the cottage season, I believe that XRP still has room for growth.
