Coin Review - XRP

What is it

Ripple is a blockchain protocol for inter-bank settlements. The primary focus is to work with existing institutions to facilitate quick transaction settlement to and from any fiat currency, globally. Ripple the company uses this protocol to allow banks to transact IOUs across the Ripple network (similar to how they currently use SWIFT). XRP is the native currency of the Ripple network (often confused with Ripple the company). XRP is a cryptocurrency and is used to pay fee's on the Ripple network and can be used in the settlement of transactions BUT is not required. Ripple and XRP are not one and the same.

Ripple the company currently holds the vast majority of XRP tokens in a time locked escrow, releasing up to 1bn Ripple each month until they run out of reserves (total of ~55bn in escrow).

When looking at investing you need to understand what exactly you're investing in. Buying XRP gives you absolutely no rights to Ripple the company. Investing in Ripple the company can only be done through traditional VC raising rounds with equity (not that they will ever need it as their war chest value is currently sitting at ~US$25bn).

What problem is it solving

Ripple company has 3 products:

  • xCurrent - xCurrent is Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking. Using xCurrent, banks message each other in real-time to confirm payment details prior to initiating the transaction and to confirm delivery once it settles.
  • xRapid* - xRapid is for payment providers and other financial institutions who want to minimize liquidity costs while improving their customer experience. Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high. xRapid dramatically lowers the capital requirements for liquidity.
  • xVia - xVia is for corporates, payment providers and banks who want to send payments across various networks using a standard interface. xVia's simple API requires no software installation and enables users to seamlessly send payments globally with transparency into the payment status and with rich information, like invoices.

*This product actually uses XRP as a means for immediately settlement and liquidity. Touted to be for enterprises to quickly and easily settle payments cross-border into any other asset, be it FIAT or digital.

Why do we like it

  • Deflationary currency as all fee's per transactions are burned
  • One of the fastest blockchains currently on the market
  • Considerable amount of money reserves which can pay for success
  • Ripple has amassed a very influential and powerful management and executive team to execute the growth strategy - should they be successful, whether it's right or not, XRP will benefit
  • Blockchain processes ~20k transactions an hour
  • Listed on all major global exchanges
  • ~US$160Mn in traded volume per day 

Why do we not like it

  • Challenge they are trying to solve is not unique, the only real differentiator being the company and the speed of settlement - otherwise BTC, ETH, DGB or XLM could do the same.
  • We do not know of a single bank that is regularly using XRP for transactions or payments - outside of a paid trial
  • 3 Lawsuit for possible securities violations are currently underway, after paying a fine to FinCEN for failing to register as a money services business - the other lawsuits consist of market manipulation and failing to register as a security
  • Ripple company control 55% of the total currency
  • A large proportion of the XRP network is still owned and managed by Ripple company
  • Jed McCaleb owns 20bn XRP and left Ripple to start Stellar - Jed is allowed to sell US$20k a day until 2019 when he will be able to cash out 750m XRP

Final Verdict

If Magnet could invest in Ripple the company we would. The company is building, faster, cheaper and more secure payments for enterprises. The success of this would trickle down to the consumer with rates being significantly cut for International transfers, and moving money around in general. The follow on benefit could mean retailers become more comfortable with never seeing cash again, and instead of paying for things with USD, GBP or AUD - they do so with XRP (long shot). However, the competitive landscape is fierce, enterprise are the slowest to act, retail banking adoption for blockchain let alone XRP is a distant future away, the fundamentals of this token act no different to a pay-per-play utility token which Magnet is naturally adverse too and most importantly XRP is front and centre for a securities violation - for these reasons, besides some inevitable media speculation spikes, we see XRP as a risky investment. 

One item to note, a company with unlimited resources has the ability to do anything they want over time. Ripple the company has as close to unlimited resources as you can get, a strong brand name, smart people, big influencers and first mover advantage which are incredibly powerful - should the landscape change we will be reviewing this opportunity closely.

Disclaimer: Magnet Capital does not accept any liability for any financial decisions made on the basis of the information provided. The above opinion does not constitute financial advice and should not be taken as such. Magnet Capital urges you to obtain professional advice before considering any investment decisions


Egor Sidelska