Ripple Review: An ACTUAL Critical Analysis of the Company and its Token, $XRP

Pre-Article Notes

Recently, there has been a lot of criticism and angst regarding my opinions on the Ripple token, so I figured that I would clarify things up at this point and provide some context around things.

First, some things I must clarify:

· I believe that the price of $XRP will drop substantially in the near future (1–2 weeks). This is based on technical analysis. I’m not sure why this was an offensive prediction for some people, but I stand by it.

· $XRP isn’t being adopted. Testing is not adoption. Working with the parent company does not equal adoption. I’ll cover this in greater depth within the article. I get that some people don’t want to accept that information, but it’s a fact. This fact is backed up with statements from Brad Garlinghouse.

· I don’t believe that the banks will adopt $XRP and they have absolutely no reason to. I will demonstrate this in the article. I will also demonstrate why it would be logistically absurd for them to adopt the $XRP token as a means of settlement.

· By no means do the above statements suggest that $XRP is a shitty investment. It will continue to fluctuate and pump in price like it has in the past. While that happens, sure — go ahead and invest and get your money. Just understand that the pot of gold at the end of the rainbow that the community is clinging to where every bank suddenly adopts $XRP and they throw out every other settlement method and the coin spontaneously surges to $20 is never coming.

PLEASE NOTE: To Avoid Any Confusion, When I Am Referring to the Token Specifically, I Will Call it XRP. When I am Referring to The Company Specifically, I Will Call it Ripple.

First Things First

I’m not going to give some lengthy, boring history of how $XRP came to be or dig too deep into the company, Ripple — you can do that. The purpose of this article is to get right to the meat of the situation and dissect what’s going on:

The company Ripple is using the $XRP token as a means of providing “free” funding for other business activities.

So You’re Saying It’s a Scam?

No. It’s actually a really brilliant business model if you ask me. Hats off to Brad Garlinghouse because its an effective strategy and it makes a lot of sense.

Necessary Facts About $XRP

Okay, let’s start with a few fundamental truths here.

What is XRP?: First Fact

According to their website, “It’s the fastest and most scalable digital asset, enabling real-time global payments anywhere in the world.”

More specifically, it states on that same page (if you scroll down), “Built for enterprise use, XRP offers banks and payment providers a reliable, on-demand option to source liquidity for cross-border payments.

Okay, sounds cool.

But hang on — doesn’t Ripple already have a product that does that?

I believe they do — and its called xCurrent.

Second truth — the company Ripple has a product that directly competes with $XRP (somewhat — we’ll dig deeper into this in a second)


For those having trouble reading the text above, it states, “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. It includes a Rulebook developed in partnership with the RippleNet Advisory Board that ensures operational consistency and legal clarity for every transaction.”

From what I just read, that sounds exactly like what Ripple said that XRP does.

Here’s that XRP definition for you again, in case you forgot:

XRP: “Built for enterprise use, XRP offers banks and payment providers a reliable, on-demand option to source liquidity for cross-border payments.

xCurrent: “xCurrent is Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments…”

Ripple was even kind enough to leave a video explaining how xCurrent works:

Let’s break down some of the differences here between xCurrent and XRP (Source: )

You’re a Fool! There’s Definitely a Difference Between XRP and xCurrent

Yes, you’re right — there is a difference.

For those that are a bit confused on what’s meant by ‘settling payments’ or why these use cases are different, I’ll explain now.


Imagine you live in the United States. You own a bank. As a bank, you have tens of millions/billions in dollars. However, you decided to expand recently and now you have a bank in England too. But your main branch and holdings are in the United States where dollars are used. So, you need to be able to obtain GBP (British Currency) from time to time to ensure that you can satisfy customer withdrawal demands or other business issues in Britain.

This won’t be difficult for you because USD and GBP are VERY commonly used, exchanged between each other and in high-demand! In this situation, your bank would have a nostro account.

What’s That?


Basically, all this means is that your bank will have a bank account in Britain where you already have a bunch of GBP stored in there. This bank is your nostro account.

Here’s some screenshots I took from the video that Ripple provided to give you a better overview of how all of this works in conjunction:

I added in the boxes above the different banks to make it more clear what we’re talking about here.

So, those little blue ottoman looking boxes at the bottom represent the Ripple network. As you can see, the banks aren’t connected together, they’re connected to that network.

They are all connected by the “ILP Ledger”.

So in the example they used in the tutorial video that Ripple created, a customer named Alice in the USA is trying to send some money to a guy named Bob in Europe. Above is all the information that the ILP Ledger (RippleNet) has.

This is the same picture as the last one, but I added a green circle to show the payment that Alice is attempting to send Bob, which is $500.

So, in order to facilitate this, you’ll need to get that money to the beneficiary bank (you’re also charging Alice $20 because you’re a greedy bastard).

So, the RippleNet will take this information and convert the values to EUR (Bob’s Bank is in Europe in This New Example). As you can see, the nostro bank (where we’re getting the money from to pay Bob’s bank) also charges some fees as well. No problem.

All that is tracked in the RippleNet.

After this step, the payment “pre-verification” takes place as well. This is the second step on the timeline that you see at the top of these pictures:

According to the Ripple video, “Since all banks have the facts, they can pre-validate the payment” to ensure that no accounts are being withdrawn, etc. by using the RippleNet technology.

Above is an example of how this works.

So, once this is completed, the system that RippleNet has in place coordinates the ‘funds flow’ process, which is the transfer of funds from the Originating Bank to the Correspondent Bank and then finally to the Beneficiary Bank.

Check out these graphics below:

So, the Originating Bank contacts the Correspondent Bank and asks them to go ahead and transfer the funds from their Nostro Account (that’s got all the pounds) and provide it to the Beneficiary Bank where Bob has his account.

In order to facilitate the process above (creating a settlement), Ripple first places a cryptographic hold on all of the accounts involved for the amount of the funds to be transferred.

Then, RippleNet provides a “cryptographic” signature to validate that the necessary funds are possessed by each bank on the network.

Once this is done and everything has been verified and the RippleNet system knows that all the funds are there, the settlement of the transaction is done by adjusting the balances on the ILP Ledger that all of the banks are connected to:

That’s pretty much it! Once again, these screenshots all come from Ripple’s explainer video here:

I knew most people reading the article weren’t going to watch it, so I decided to take the screenshots and break it down here as well in case you’re allergic to YouTube videos or have some other condition/disease that prevents video watching.

Okay, I Understand How RippleNet Works But I Thought This Was About $XRP !

It is. I described the RippleNet network so that you can understand that $XRP is not being created/designed to take RippleNet’s place.

So What Is the XRP For?

$XRP is Designed to Cover All of the “Other” Cases.

So, once again — let’s suppose that you own a bank in the United States where we use USD. One of your customers wants to transfer their holdings over to Afghanistan. You don’t have a nostro bank in Afghanistan.

This is where Ripple claims that $XRP would come in handy. Using the xRapid network (not released yet), banks would be able to use XRP as their medium of exchange between the two banks, which in essence would give it the necessary liquidity.

Ripple confirms this use case directly on their website:

For those that have trouble reading this, it says, “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.”

Here is One Major Problem With This Setup:

“RippleNet facilitates 89 out of every 100 transactions between its participants.” ßSource

Thus, XRP, at best, would facilitate 11 out of every 100 transactions among the same participants if we assumed that they would always use XRP as their preferred liquidity method when making such transfers.

Another Major Issue to be Considered

On Ripple’s website, they present this example layout for how the transfer would work.

I’m assuming that the orange block depicted here would represent the xRapid payment system. They’d send the equivalent amount of XRP through the xRapid system, and then that would exchange it to the requested fiat, then deliver this to the ‘Payout Bank’.

Why Do I Assume This?

Because of the organization of the pairings in the dynamic.

It has “XRP/KRW”, “XRP.JPY”, and “XRP/MXN” all as examples. This ordering of pairs means that XRP would be the base pair and the value on the right of the “/” symbol would be the pair it is being traded in for.

Check out what Investopedia Teaches Us About Traded Pairs:


With all of that said…

There Are a Few Issues With This Setup That I See as Being a Substantial Impediment to Adoption

#1 — Banks May Be Adverse To Investing in a Large Holding of XRP

Banks that represent the ‘payment providers’ on the graphic posted above would have to make an investment in XRP. This, in my opinion, is inherently riskier than investing in any fiat currency because XRP has been subject to substantially more volatility than any fiat currency around the world (barring countries that are in a Civil War). Factors that have nothing to do with the payment provider or the country of origin of the payment provider could plunge the value of XRP, making it infeasible to trade.

#2 — The appreciation/depreciation of various fiat currencies that would be paired with XRP

Certain currencies may appreciate against XRP more so than the payment provider’s native fiat currency would. For example, the value of the Afghani currency (don’t know what it is off top) against the dollar may hold constant. However, the value of XRP against the dollar may depreciate significantly. Therefore, it would be against the financial interests of the bank to attempt to use the xRapid system in such cases. These arbitrage opportunities occur often and quite frequently due to the different regulatory forces that are prevalent in various countries. I posted an example below:

Source: ←-This occurred December 30th, 2017, a little over a month ago from the time of writing.

#3 — Major Liquidity Issues (Obtaining XRP)

I’m not seeing where the liquidity would come from to facilitate such interactions between a variety of traded pairs. From what I’ve seen on Ripple’s website and elsewhere, they are counting on developing countries to be the primary investors in XRP, so that when other banks within the same country wish to use the xRapid system, these banks provide the necessary liquidity. However, because of the issues I mentioned in #1 and #2, I can’t see why any fiscally responsible bank would consider taking such a strong position in XRP to the point where they’d have a ‘store’ of it when that comes with the inherent risk of losing a substantial sum of potentially uninsured money.

Once again, the price of XRP fluctuates far more than any other fiat currency in the world. Banks may rationalize that it is simply better to pay the fees to a nostro bank rather than risk losing 20% or more of our initial investment. Thus, the xRapid network option likely is not a feasible option for most banks and unless XRP has a way to get around this, I can’t see the situation changing in the near future.

#4 — Major Liquidity Issues (Selling XRP)

Market liquidity issues must be addressed as well. Assuming that this did become adopted at one point in time, the liquidity inherent in XRP itself makes me question whether the system could be sustainable. For example, if an Afghani bank buys 750 million XRP to facilitate these transactions and they end up doing approximately 200 million in transfers per day, they would be adding $200M of trading volume to the market for whatever fiat currency they are swapping their pairs out for.

Where is xRapid receiving this liquidity from? How in the world could these orders be fulfilled without significantly depreciating the underlying price of XRP itself? This problem compounds itself when considering the fact that the example I gave is for only one bank. If the adoption of this network somehow expanded, this issue would compound itself even further. My estimate is that it would create rapid boom and bust cycles because banks would be trying to acquire vast amounts of it and selling vast amounts of it at the same time. There’s absolutely no way that it would reduce any volatility in the market. Thus, once again, the issues in #1, #2, and #3 would be exacerbated by this setup.

Additional Note:

From my analysis, XRP being used as an actual method of settlement between banks seems implausible at best. I also believe that the developers are consciously aware of this as well, which is another portion of this article that I’m going to dedicate to addressing:

Ripple Corporate Structure

Hypothesis: I believe that the company, Ripple, created the XRP token as a means of funding their own business to help them create and forge partnerships with the 100+ banks that they have added to their network in the last year or so and that they do not truly intend on launching a good-faith effort to actually have the cryptocurrency adopted.

My plan is to provide adequate evidence to back up this claim fully.


In terms of the claim that I’ve leveled against Ripple that the purpose of XRP is to raise funds for its parent company Ripple in order to help them execute plans/operations — that’s information that I got straight from the company itself. Check out the screenshot below:


If you can’t see what this says, it states, “Ripple XRP holdings incentivize the company to make Ripple [notice they didn’t say XRP] as useful as possible. XRP exists as a native asset on Ripple for anti-spam transaction purposes, and for currency bridging only if beneficial to users. Otherwise, the use of XRP in transactions is completely optional.”

This article from CNBC captured the essence of Ripple’s brilliant business model succinctly:

For those that can’t read what’s posted above, it says, “Sixteen months ago, Ripple raised $55 million by selling equity in a typical Silicon Valley funding round from strategic investors, following earlier financing from Alphabet’s GV (Google Ventures), Andreessen Horowitz and others. The round placed the value of the company around $400 million.

Today the San Francisco start-up could bring in many times that amount of cash every month — if it wanted to — without giving up any company ownership or control.”

There Are a Few Statements Within That Excerpt From CNBC That Deserve Special Attention

1.) Ripple raised $55 million from partners like Google + Andreessen Horowitz and others by selling equity. So, they each have a pretty large stake in Ripple. This isn’t a problem at all. However, you should note that Ripple came out the gate with $55 million in funding.

2.) The round placed the value of the company around $400 million. That says a lot considering the fact that Ripple possesses control of 60/100 billion of the XRP tokens, making the appreciation of XRP’s price by just a nickel ($0.05) a proportional increase of $3 billion in USD. Given the fact that these companies contributed approximately $55 million to Ripple, I strongly doubt that this valuation was a result of a general lack of confidence in Ripple at all.

I believe that they crunched the numbers, did their due diligence, and reviewed the logistics, roadmap, and every other piece of financial information associated with Ripple and determined that there was a relatively low likelihood that the XRP token would be widely adopted. If so, they would have valued the company substantially higher. There’s no way around that fact.

3.) “Today the San Francisco start-up could bring in many times that amount of cash every month…without giving up any company ownership or control.” They can — and they have.

Let’s Review Ripple’s Performance Throughout 2017:


So, let’s package and condense some of the information that was posted above directly from Ripple’s website:

The Sales Corroborate What I Was Saying About XRP’s Liquidity Issue

You’ll notice that in each one of the reports that I posted above, there is a statement that says, “These participants [whom purchased directly from XRP II, LLC] tend to be institutional buyers, and their purchases typically include restrictions that mitigate the risk of market instability due to potential subsequent large sales.”

Another interesting fact that I noticed is that the amount of XRP that was sold in Q2, Q3, and Q4 to these institutional participants was exactly the same — $21 million, $19.6 million, and $20.1 million respectively.

This begs the question of whether XRP is gaining any ground whatsoever even while its price soared several hundred percent.

Ripple Also Made a Whole Lot of Money

If you add up the total $$ that Ripple made from its sales to institutional investors + on the market itself, you’ll arrive at the number: $181.8 million dollars.

So, what did they do with that money? Good question. We don’t know specifically.

“Do You Think They Scammed People?”

Absolutely not. However, I do believe that more transparency should be given to the investors of XRP so that they can make a better assessment on the inherent value of XRP. So, I believe the following information should be divulged to investors:

· How was the XRP sold on the exchanges “programmatically”? Does this mean every week? Once every day? How much per selling cycle? And what was the decision making process or logic used when assessing how much to sell and when?

· Who were the institutional investors that purchased directly from you? If you cannot divulge this information, why? Also, if you cannot divulge the investor information, how does this align with your company’s stated premise that XRP would be used enhance trust and usability in the banking industry?

· What was the money raised from XRP spent on? How much of that budget went to the actual development of XRP? What percentage of the funds from the XRP tokens being sold goes to the development of XRP versus other things? Do you have any means of validating or verifying this information internally and externally? What are they?

· Are there any hot wallets/Treasury accounts that are associated with the company Ripple for the token, XRP? If so, can we receive the public wallet address? If not, how does your company insist that it can adhere to fair market principles when it owns the majority of a traded security in an unregulated market where KYC is limited to the identification of individuals only and never made publicly available by any exchanges?

· Are you compliant with the SEC? If so, why do we not possess this information already in accordance to the SEC mandate that one must make pertinent investment information publicly available for retail investors. If not, why have you not sought to become compliant with the SEC? Given the fact that the SEC and the CFTC have stated their dedication to the idea of implementing strong regulations for cryptocurrency in the near future, how will this affect your token and any subsequent plans to facilitate partnerships with any of Ripple’s clients to use the xRapid technology?

Ripple Must Prove Legitimacy

The last bullet point above represents one of my bigger concerns. Once again, I want to iterate that I’m not accusing Ripple of any foul play. However, I would like to bring up the fact that they could easily be involved in the manipulation of Ripple’s price and they certainly have more than enough incentive to do so. As the CNBC article mentioned, XRP represents an opportunity for Ripple to make an absurd amount of money without having to sell anymore of their company’s equity or seek debt financing. XRP essentially can function like a bottomless Angel Investor for Ripple, which is an unbelievable golden ticket.

Given the inherent benefit that the company Ripple has gained from XRP ($181 million in 2017 alone), all of the above questions and concerns must be addressed by the company if they are truly in pursuit of transparency and honesty with its investors. Otherwise, these questions must continue to loom for the foreseeable future because there is simply no reason to believe otherwise — even if the company’s executives have stated otherwise.

Ripple Must Show Its Investors That a Good-Faith Effort is Being Made to Have XRP Reach Widespread Adoption

Another major issue that I brought up in those questions that I posed above is that the allocation of funds received from $XRP’s sell-off throughout the year should be divulged. $181 million is a significant sum of money and, when comparing this amount of money to the investments and foundation funds of other cryptocurrencies, this appears to be more than enough to finish the creation of the protocol for XRP (xRapid). Given the fact that this project is not completed yet, despite the sheer amount of revenue, which could really be considered pure profit, that has been accrued by Ripple, I seriously question their dedication to the project.

Adoption Roadmap Needed

I am also calling upon the company to provide a comprehensive and detailed roadmap for how they are going to conquer some of the inherent concerns/pitfalls of xRapid, mainly the liquidity issue. For the last three quarters (9 months), Ripple has reported that it must restrict the amount of XRP that its institutional partners are able to purchase due to concerns about market instability AKA liquidity.

The amount of XRP that has been sold to institutional investors has also remained stagnant (actually decreased by 5%+ from Q2 to Q3), throughout the last 9 months. Why is this? From an outside perspective, this gives one the impression that XRP has failed to improve the adoption or liquidity issues in any way. If this is not true, why hasn’t the amount increased? Also, what is the complete plan for scaling the project with the XRP token? Is there a plan in place yet?

“But…Some Banks Have Used It!”

Some people will more than likely rebut this article by stating that there are some banks that have used XRP. This is true, to an extent. A few banks have ran tests only with XRP to see if the system could work. A couple of them affirmed that it does work and that it would save money relative to methods available to them today.

However, these are both points that I ceded in this paper. I have no doubt that the technology can be implemented. My question is whether any bank will ever use the XRP coin as a means of settling the transactions that it is built for due to the issues that I outlined above. Its one thing for a bank to “test” something, its an entirely different thing for them to pledge that they will adopt it.

Thus far, no bank has pledged to adopt XRP. MoneyGram didn’t either.

Without any statements given to the affirmative to verify that XRP will, in fact, be used by any financial institution, the fate of the coin, long-term, remains in question.

xRapid still hasn’t even officially released yet at this point and I doubt that any responsible financial organization will rush to implement it immediately. It could be months and months, if not years of thorough testing of the implementation before even considering adoption as a means of settling such payments. Even then, the major issue of liquidity + extremely volatile prices of XRP in relation to fiat currency begs the question of whether banks will consider this to be a responsible investment from a risk/reward cost-analysis model of evaluation that management in companies often use.


Without this information, XRP is not a responsible investment in the long-term (greater than a year). Wall Street and the world of finance have taught us countless times, that we cannot simply assume that a company will “do the right thing”. This does not mean that we should automatically assume wrongdoing in absence of evidence to suggest otherwise, but we should be risk averse in our investments to avoid companies that have not disclosed enough necessary information to allow its investors to make a reasonable decision on whether they’d like to risk their hard-earned money on the fate of the investment/security.

In the short-term (shorter than a year), it may be good for picking up extra fiat on exchanges. I have no doubts that its price will bounce at some point after it is finished enduring its bear market. I’m not telling people to stay away from the token, I just wanted to publish this article to temper the expectations of long-term holders whom are convinced that XRP will never fail under any circumstance and will last forever. Hopefully the company, Ripple, will seek to answer all of these questions in the near-future.

Extra Notes:

I had a few qualms about the structure of the Blockchain and its consensus method as well, but I will leave that to be discussed in another article because I believe that the issues that I outlined are substantially more pertinent at this time period.

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