San Francisco start-up Ripple can claim to have created one of the most valuable cryptocurrencies. Its digital tokens, known as XRP, have a total value of almost $ 30 billion, behind only Bitcoin and Ether.
But, eight years after its launch, Ripple is still trying to find compelling uses for the blockchain technology that underpins its currency that would justify such a high figure. Now, in an effort to attract more users, it has taken a new direction: trying to become the Amazon of the cryptocurrency world, using its platform to support activities far beyond the system of original cross-border payment he hoped to build.
The popularity of XRP has already made Ripple – and its rulers – far richer than most startup software companies. The company has cashed in over $ 1.2 billion from its own cryptocurrency holdings since early 2017.
It still accounts for around 55% of the total supply, worth around $ 16 billion at current prices, far overshadowing its underlying tech business. As a result, the value of the company is tied “primarily to XRP, with an option on a small software company,” said a former executive.
Brad Garlinghouse, managing director, admitted that Ripple is heavily influenced by the value of its crypto treasure. “We are capitalists, we own a lot of XRP,” he said. “Do I care about the overall XRP market? 100 percent. ”But he added that the company’s goal was to“ provide a lot of utility through XRP, ”which will likely take“ years ”as it develops applications that use its blockchain technology – and, by extension , justifies the high price of the currency.
The battle to win the banks
Ripple’s initial goal, which was to create a more efficient cross-border wholesale payment system, progressed slowly with banks being the initial target of the technology.
Santander, the Spanish lender who invested in Ripple in 2015, recently chose not to use XRP at the heart of an ambitious new international payments network – a sign that even some of Ripple’s most avid backers are yet to see the use of its core technology. Cedric Menager, managing director of the network, suggested that XRP was not yet actively traded in enough markets to meet Santander’s needs. The bank wanted to “give the best [user experience] as quickly as possible and operate in as many currencies and corridors as possible from the start, ”he said.
Ripple said Santander was still using some of its software in the payment service and was “one of our biggest and most important customers.” The company also claims a high growth rate for installing XRP at the heart of its system, although it does not provide absolute numbers, and also claims that many banks use certain elements of its software.
Many observers say Ripple has always faced an uphill battle trying to win over the banks, which have already invested heavily in current technology and are benefiting from the current system.
“It’s like Uber trying to disrupt the taxi industry by working with taxis,” said Michael Arrington, the founder of news site TechCrunch and now at a $ 100 million cryptocurrency hedge fund.
Mr Garlinghouse blames the uncertainty in the United States over whether XRP tokens should be regulated as securities to deter more companies from using Ripple’s blockchain. He and the company also face legal action for selling unregistered securities.
Ripple then used its main asset – its cryptocurrency reserves – to try to attract more users to its technology beyond banks.
In cross-border payments, the company has focused on remittances, where customers face high fees for sending relatively small amounts through money transfer companies. Last year, Ripple used some of its money to buy a stake in MoneyGram, as well as Bitso, a Latin American cryptocurrency exchange. The investments helped put its technology at the center of about 7 percent of all remittances from the United States to Mexico in June, the company said.
But success is only one market and comes at a cost. Moneygram deposits show Ripple handed it $ 31 million in “market development fees” to encourage the use of XRP in the first half of this year – payments that accounted for 60% of Moneygram’s operating profit .
Mr Garlinghouse defended the subsidies and said it was common for payment companies to use financial incentives to generate business on their networks. He also said the need for payments like this has diminished as business has picked up: “If you look at newer customers, the dynamics are now different from when we started.”
‘The Amazon of payments’
Ripple has also distributed hundreds of millions of dollars to spur broader uses of blockchain technology. A year ago, he said he distributed the equivalent of more than $ 500 million – much in the form of XRP – through his Xpring fund, in order to create more new applications using blockchain technology and could indirectly benefit Ripple in the long run.
This included handing over $ 260 million worth of cryptocurrency to Coil, a start-up creating a decentralized online media marketplace where creators can sell directly to consumers. Most of the money has been earmarked for grants to attract developers and creators to join the Coil market, said Stefan Thomas, chief executive of the company and former chief technology officer of Ripple.
A year after launching a blogging platform, however, Coil appears to generate little in exchange for the documents. A German blogger who identifies only as Benny has publicly disclosed his earnings on the service since the start of this year: Micropayments received to entice readers are only about $ 15. However, during the same time period, Coil gave him $ 2,250 in XRP to encourage him to continue writing.
Ripple has since shrunk Xpring documents and is now trying to produce the tools developers need to build their own apps to run directly on its blockchain. Ethan Beard, who leads Ripple’s development efforts after holding the same role at Facebook, said the company has gone from “writing checks to writing code.”
According to Garlinghouse, this latest effort – which he described as an extension of the company’s strategy, rather than a complete change of direction, will transform Ripple into a larger blockchain platform in much the same way it does. Amazon has become a platform for a wide range of e-commerce.
“Amazon started out as a bookseller and just sold books. We started with the payments, ”he said. “In two years you will find out that Ripple is in payments like Amazon was in the books.”
Speculators don’t give up
The bet is a reversal of the position Mr. Garlinghouse took when he joined Ripple as managing director five years ago and focused on payments.
Unlike Amazon, however, Ripple has yet to produce success with its first app, leaving it without a large active user base to sell other services to. Furthermore, it has a controversial reputation in many parts of the cryptocurrency world, where its attempts to build bridges with the existing financial system collide with the drastically anti-establishment motives of many developers.
“It sparks a lot of hatred in the crypto world because it tries to be close to banks,” Mr. Arrington said. In a sign that some of the more potentially disruptive new applications are not drawn to its platform, a wave of experimentation in decentralized financial applications – known as DeFi – has been drawn to the Ethereum blockchain instead. .
Despite Ripple’s struggles to find more uses for XPR, the speculators who have made it a staple of the cryptocurrency markets are not giving up. Prices have been moderate for much of this year, missing the jump for Bitcoin and Ether, but then climbed nearly 50% in the last week of July, placing them at their highest level since the start of the coronavirus crisis.
Even the prospect of a long search for a goal does not shake the confidence of the biggest proponents of cryptocurrency. “It can take centuries for currencies to spread,” said Thomas de Coil.
Additional reporting by Nick Megaw
