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What is behind the surge of XRP market capitalization by 50 billion dollars?
Author: insights4vc Source: substack Translation: Shan Ouba, Golden Finance
In the past week, the price of XRP has increased by about 60.96%, rising from $1.46 to $2.35, with a market capitalization exceeding 130 billion dollars. This article will briefly analyze the historical development, ecosystem, and the latest progress of Ripple (the company behind XRP) in terms of tokenization of real-world assets (RWA) and regulatory involvement.
Ripple was founded in 2013, originally known as OpenCoin, and later renamed Ripple Labs. As a pioneer in blockchain technology, Ripple focuses on cross-border payments and decentralized finance (DeFi). The core of the Ripple ecosystem is XRP Ledger (XRPL), a distributed ledger developed by David Schwartz, Jed McCaleb, and Arthur Britto in 2011, designed to provide efficient, scalable, and secure global payment solutions, aligning with Ripple's vision of modernizing financial infrastructure.
Latest Developments in XRPL
• Breakthrough in RWA Tokenization: On November 25, 2024, Ripple announced a partnership with Archax, the first digital asset exchange regulated by the UK FCA, to tokenize Abrdn's £3.8 billion liquidity fund using XRPL. This marks the launch of the first money market fund token on XRPL, further consolidating its leading position in the tokenization of real assets.
• Deepening Regulatory Participation: On December 2, 2024, WisdomTree joined Bitwise, 21Shares, and Canary Capital in applying to the U.S. Securities and Exchange Commission (SEC) for the launch of a spot XRP exchange-traded fund (ETF). This trend reflects the growing appeal of XRP among institutional investors and indicates the widespread adoption of tokenized financial instruments.
XRP Status: Q3 2024 Review
Ripple's quarterly report reveals key developments in XRP and the broader cryptocurrency market:
• Clear Legal Status: The court ruled that XRP is not classified as a security, allowing it to be relisted on exchanges in the United States and other international markets. The distinction between Ripple and XRP is widely recognized.
• Institutional Interest Surges: Grayscale has launched an XRP trust product, while Bitwise, Canary, and 21Shares have submitted XRP ETF applications. This indicates that institutional confidence in XRP continues to rise.
• Macroeconomic Impact: The Federal Reserve's 50 basis point rate cut has triggered a rise in risk assets, with the crypto market rebounding accordingly. Additionally, the launch of the Ethereum ETF in the United States has attracted $552 million in capital inflow.
• Regulatory Environment: The SEC has appealed part of the ruling in the Ripple case but acknowledges that XRP itself is not a security. At the same time, countries and regions such as Japan, the UAE, and Hong Kong have adopted friendlier cryptocurrency regulatory policies, contrasting sharply with enforcement actions in the United States.
• Global Expansion: Ripple has received regulatory approval in Dubai and is driving crypto innovation through strategic investments and advocacy activities.
As crypto ETFs lead market growth and the U.S. presidential election approaches, regulatory clarity and industry maturity will be key to the future development of digital assets.
Core Team Members
• CEO: Brad Garlinghouse
• Co-Founder and Executive Chairman: Chris Larsen
• CTO of XRP Ledger: David Schwartz
• Co-founder of XRP Ledger: Arthur Britto
• Chief Financial Officer (CFO): Jon Bilich
• Chief Legal Officer (CLO): Stuart Alderoty
• Former Co-founder: Jed McCaleb (currently a co-founder of Stellar)
Ripple Labs, Inc. (XRP) Funding Overview - Total Funding Amount: $294.5 Million
Financing Round:
Date: April 11, 2013
Financing Amount: Undisclosed
Investors: Andreessen Horowitz (a16z), Lightspeed Venture Partners, Vast Ventures
Date: May 14, 2013
Financing Amount: Undisclosed
Some investors: GV ( Google Ventures ), IDG Capital
Date: November 12, 2013
Financing Amount: 3.5 million USD
Some Investors: Core Innovation Capital, Camp One Ventures, IDG Capital, Hinge Capital
Date: December 3, 2014
Financing Amount: 4 million USD
Some investors: Santander
Date: May 19, 2015
Financing Amount: 28 million USD
Some investors: IDG Capital, Blockchain Capital, Digital Currency Group (DCG), Core Innovation Capital, RRE Ventures, CME Ventures
Date: October 6, 2015
Financing Amount: 4 million USD
Some investors: Santander, CME Ventures, SeaGate Technology
Date: September 15, 2016
Financing Amount: 55 million USD
Some Investors: SBI Investment, Accenture, Santander, CME Ventures, SeaGate Technology, Hinge Capital
Date: December 20, 2019
Company Valuation: 9.8 billion USD
Financing Amount: 200 million USD
Some Investors: Tetragon Financial Group Limited, SBI Investment, Bossanova Investimentos, Route 66 Venture
Token Economics
XRP is the native asset of the XRP Ledger (XRPL), created in 2012, with a total supply fixed at 100 billion, all of which were pre-mined.
• Among them, 80 billion is allocated to Ripple Labs, and 20 billion is allocated to the founding team members.
• In order to stabilize the market and manage supply, Ripple deposited 55 billion XRP into a custody account in 2017, releasing up to 1 billion XRP per month, with an expected release period of 55 months.
• Unused XRP will be re-locked, extending the release time. As of December 2024, Ripple still holds approximately 37.24 billion XRP in custody.
Ripple's Stablecoin RLUSD
Ripple originally planned to launch the stablecoin RLUSD on December 4, 2024, but it has been postponed due to waiting for regulatory approval. Ripple is collaborating with the New York State Department of Financial Services (NYDFS) to meet stringent regulatory requirements and maintain high operational standards.
Overview of RLUSD:
• Announcement Date: April 2024
• Asset Backing: Fully backed by US dollar deposits, short-term US Treasury bonds, and cash equivalents.
• Objective: RLUSD, as an enterprise-grade, compliance-first stablecoin, aims to complement Ripple's cross-border payment solutions and operate alongside XRP.
• Market Outlook: With the stablecoin market expected to grow to over $2.8 trillion by 2028, RLUSD is seen as a significant contributor to this rapidly expanding field.
Key Indicators (December 5, 2024)
XRP Ledger: Detailed Overview
XRPL differs from traditional Proof of Work (PoW) or Proof of Stake (PoS) blockchains by adopting a federal consensus model, which allows validators to reach consensus on the ledger state without mining or staking. The consensus protocol aims to improve efficiency, reduce latency, and minimize computational overhead, thus enabling fast transaction finality.
Validator Network and Unique Node List (UNL)
The XRPL network consists of more than 109 validators distributed across the globe. A subset of these validators make up a list of unique nodes (UNL), which is essential for consensus. UNL consists of 31 trusted validators, including entities such as Arrington XRP Capital, Bifrost Wallet, Ripple Labs, and XRPScan. While any entity can operate a validator and issue UNL, the default UNL is heavily influenced by Ripple Labs and the XRP Ledger Foundation.
Centralization Issue:
The default UNL planned by influential organizations has raised questions about centralization issues. Critics argue that the selection process of credible validators is not entirely permissionless and could undermine the decentralized spirit of blockchain technology. However, supporters emphasize that users can autonomously modify their UNL, allowing for a certain degree of decentralization based on individual trust preferences.
Consensus Process
The consensus process in XRPL is carried out through iterative rounds, where validators propose and agree to include a set of transactions in the next ledger version. This process includes:
This mechanism ensures that all participants agree on the state of the ledger and the order of transactions without resource-intensive mining activities.
Trading Speed, Fees, and Account Reserves
transaction speed
There are significant differences in transaction speed and capacity among different blockchain platforms. XRP processes transactions within 3 to 5 seconds, supporting a throughput of about 1,500 transactions per second (TPS). Solana achieves sub-second transaction speeds with a maximum capacity of up to 65,000 TPS. In contrast, Bitcoin takes over 10 minutes per transaction, processing 5 to 6 TPS, while Ethereum processes transactions at a speed of 13 to 15 TPS.
transaction fee
The transaction fees on XRPL are extremely low, approximately 0.00001 XRP per transaction. This low cost makes it economically viable for users who frequently make transactions and small payments, aligning with the ledger's goal of facilitating efficient value transfer.
Trust limit and reserve requirements
A unique aspect of XRPL is the use of trust lines for token management. To activate a new XRPL account, users must hold at least 10 XRP. Additionally, each unique type of token held in the wallet requires an extra reserve of 2 XRP. These reserves serve as a spam prevention measure to prevent ledger bloat and deter malicious activities.
Trust Line Function:
Ripple Mechanism
The Rippling in the XRP ledger (XRPL) can facilitate efficient net settlement by adjusting the token balances between interlinked trust lines, thus bypassing the direct involvement of the issuer. Users can control this feature:
This flexibility ensures that network participation can be customized according to user needs.
hooks for enhanced functionality
Hooks is a lightweight WebAssembly (WASM) code that allows for programmable features such as transaction automation, compliance checks, or payment modifications. Hooks are deployed on the Xahau network (a sidechain of XRPL), enhancing programmability while maintaining the stability of the mainnet.
EVM Compatible Side Chain
The sidechain compatible with the Ethereum Virtual Machine (EVM) is designed to:
Currently in the testing phase, this sidechain uses XRP as gas, positioning XRPL for broader blockchain interoperability.
Native AMM Integration
The XRPL automated market maker (AMM) enables decentralized token trading and liquidity provision directly on the ledger, supporting:
This native AMM enhances the appeal of XRPL in the DeFi ecosystem.
Explanation of the XRP Ledger Consensus Protocol
Consensus mechanisms are the pillars of decentralized payment systems, ensuring that all participants agree on the state of the ledger without centralized control. The XRP Ledger Consensus Protocol emphasizes efficiency, security, and resilience to failure modes.
Main Features
Preventing Double Spending
To prevent double spending, XRPL orders transactions in a deterministic manner. Only one of any conflicting transactions will be validated, thus eliminating the need for centralized dispute resolution.
Ledger Structure
Each ledger version includes:
This structure creates an immutable history, with each ledger containing the complete current state for quick verification.
trust-based verification
Participants form a unique node list (UNL), and trusted validators will not act maliciously. This trust model underpins the security of the system: validators only affect those who trust them.
The consensus process includes:
fault tolerance and security
Adaptive Fee Mechanism
Validators dynamically adjust transaction fees and reserve requirements to balance accessibility and network protection. Key parameters include base transaction fees, account reserves, and owner reserves, with decisions reached through median voting.
Enhanced Activity: Negative UNL
To maintain progress during interruptions, Negative UNL will temporarily exclude unavailable validators, adjust the quorum threshold, and reintegrate them upon recovery. This feature ensures continuity without compromising security.
Ripple: Regulatory and Legal Developments
Ripple has faced regulatory challenges throughout its operational history, reflecting the complexity of navigating the ever-changing legal environment surrounding blockchain and digital assets.
Key Milestones:
Conclusion
XRP's market capitalization has recently surged to $50 billion, reflecting a renewed interest in the market, but there are still concerns about its long-term institutional adoption and regulatory challenges. Ripple's advancements (including tokenized financial initiatives and ETF applications) indicate progress, but it also faces obstacles, particularly in dealing with complex legal and global frameworks. Although the SEC's rulings have clarified XRP's status in certain cases, uncertainty remains, highlighting the necessity of a cautiously optimistic stance regarding its role in the evolving financial ecosystem.