This article teaches you to understand Ripple: The Future of Technology and Financial Populism

Is Ripple creating value, or is it creating faith?

Written by: YettaS

Yesterday, the president's words took another $XRP, surpassing $ETH to become the second FDV in a short period of time, although it has long been famous, but few people know what it does, is Ripple a huge scam or not? If not, then why do we hardly see its real users on a daily basis? How big is Ripple's business, and is it enough to support its current value? If not, then what does it rely on?

This article will take you through the business logic of Ripple, face its challenges and controversies, from its cross-border payment innovation to its core XRP bridge role, and help us deeply understand how to play "populism" into a feast of capital and technology in this industry.

What kind of business is Ripple?

Ripple is in the business of cross-border payments. The process of traditional cross-border payment is divided into information flow and capital flow. At the information flow level, SWIFT harmonizes standards across receiving and sending countries; If there is no direct relationship between the two, the funds need to be transferred through the corresponding bank or the central bank, and most of the funds need to be transferred through multiple intermediary banks. As a result:1. It is time-consuming, 2. High cost, 3. Low transparency, etc.

Crypto is very suitable to solve the transfer and settlement of funds.

Let's talk about the solution under stablecoin: Local OTC/payment companies receive foreign exchange, exchange it into USD in the bank, USD needs to be exchanged for USDT at OTC like Cumberland, then transfer is completed on-chain with USDT, OTC conversion from USDT to USD needs to be done again at the receiving end, then exchange into local currency through the bank. In this solution, the transfer and settlement of USDT become very simple, but the difficulty and moat lie in the entire OTC network. If using USDC, this process will be more convenient, as it can be directly deposited and withdrawn with Circle in compliant places.

The following diagram is a flowchart with USDT at one end and USDC at the other. In fact, the red box in the figure below is the key to the entire stablecoin cross-border payment, that is, there are OTC that can provide USDT deposits and withdrawals at any time, and the amount of funds they occupy is not small, which is the "most costly" link in cross-border payment, so it is also the place where Tether has the most moat, which is exactly what I mentioned in "Consensus in the Cracks: Tether and the New Global Financial Order": all kinds of channels and exchange platforms have become Tether workers to help it spread the network to the world.

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Ripple is actually a simpler solution than stablecoins, and its process is that foreign currencies are exchanged for XRP through local banks or payment institutions, and XRP is sent to the CEX of the receiving country, and then XRP is converted into local currency. The chart below is from Brazil to Thailand as an example, and the currency link is BRL -> XRP -> BHT. In other words, Ripple is recreating a forex market with XRP as a bridge currency.

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Ripple actually offers a very clever and efficient cross-border payment solution. In traditional SWIFT or stablecoin cross-border payment scenarios, capital tie-up has always been a pain point. For example, in the stablecoin scheme, the bank needs to have enough USD for the exchange, and the OTC merchant needs to reserve USDT in advance. This kind of pre-funding is not only cumbersome, but also greatly reduces the efficiency of capital use. But the advantage of Ripple is that it cleverly leverages the liquidity mechanism of CEXs, avoiding this pain point of cash being set aside in advance. By exchanging assets directly on the CEX, this is what it proposes as On-Demand Liquidity.

What is the key to reinventing this forex market

Ripple is not just conducting ordinary business, it is more like promoting a new cross-border remittance model. From a compliance perspective, the policy environment and transaction models available in different regions vary, and Ripple is trying to single-handedly promote this new market revolution through its own efforts.

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There are two key elements in Ripple's growth path:

Bank BD: Make banks willing to use XRP as a cross-border payment solution.

CEX Market Depth: Ensure that the XRP trading market in each region has sufficient liquidity to support global currency exchange.

To that end, Ripple is not doing less.

Let's start with the first point. Ripple didn't get directly involved in much of a currency-related business before 2017. Its initial goal was to replace SWIFT and rely on the strength of the information layer to work with a number of banks to promote the education process in the market. In this way, Ripple has gradually become strategic partners with major banks everywhere. For example, in September 2016, SBI (Strategic Business Innovator) acquired a 10.5% stake in Ripple for 55 million. In the same year, Ripple also received an investment from SCB(Siam Commercial Bank). It wasn't until 2017 that Cuallix was the first financial institution to try to promote XRP as a bridge currency, and with the pandemic, the business of using XRP as a bridge currency was widely rolled out.

Here's why it's rare to find real-world use cases for Ripple, as Ripple's cross-border payment solutions aren't directly exposed to ordinary users or merchants. It is mainly operated through the channels of the bank, and the merchant or the receiver does not need to know what channel the bank takes behind the remittance. In fact, as long as banks are willing to share a few bits of business with Ripple, it is enough to support the entire business model.

Let's talk about the second point. Ripple must build a global CEX network to ensure the depth of XRP's transactions, which can be traded 24/7, with small enough slippage, and smooth deposit and withdrawal. On this end, Ripple has also put a lot of effort into it. For example, in 2019, Ripple invested in Bitso, Mexico's first CEX, and gradually expanded its market presence to Brazil and Argentina. At the same time, Coins.ph, a major exchange in the Philippines, became an authorized partner of Ripple and became the Preferred CEX for its XRP payment, further increasing Ripple's market penetration.

Ripple is actually a highly BD-driven business, and if you look at Linkedin, you will find that Ripple has a large number of BD and marketing teams, and all of them have high-end backgrounds in consulting and investment banking, which is not supported by ordinary people.

How is this business done by Ripple

In 2023, the volume of global cross-border payments will be about 190 trillion. In contrast, Ripple has about 35 million cross-border transactions and about 70 billion transactions so far, which is Gate.io size in front of the global cross-border payment volume.

I interviewed a local OTC dealer in Latin America, whose cross-border transaction volume is about $1 billion to $1.5 billion a year, which is just an ordinary OTC desk, so the transaction size of Ripple is insignificant compared to the market impact of stablecoin payments.

As per industry practice, fees for cross-border payments typically range from 1%-2%. Based on this calculation, if Ripple only relies on cross-border payment business revenue to make profits, it is obviously a drop in the bucket.

What's more, in the early days, Ripple had to do a lot of subsidies to get banks and payment companies to use its solution. For example, in the quarter of 2020, Ripple paid $15 million in subsidies to MoneyGram, the world's second-largest remittance company, to incentivize them to use the Ripple network.

What's next for Ripple – Scaling custody and stablecoins

Unlike Tether, which directly relies on the global liquidity of the US dollar to promote the expansion of US dollar hegemony, Ripple's ecosystem completely relies on self-built networks and alliances to maintain, and the bottleneck of this payment business is obvious. Therefore, Ripple also needs to think about how to break through this bottleneck. Building on the customer advantage of its own enterprise, Ripple has chosen three business lines for expansion - Payment, Custody, and Stablecoin.

In May 2023, Ripple acquired Swiss custodian Metaco for $250 million.

In June 2024, Ripple acquired Standard Custody, which owns nearly 40 currency payment-related licenses in the United States, the primary Payment Institution License (MPI) from the Monetary Authority of Singapore (MAS), and the Virtual Asset Service Provider (VASP) registration from the Central Bank of Ireland. Its CEO Jack McDonald also serves as Ripple's Senior Vice President of Stablecoins, paving the way for Ripple to issue stablecoins.

In December 2024, Ripple officially issued the RLUSD stablecoin and received approval from the New York Department of Financial Services (NYDFS).

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At this point, Ripple can be regarded as a normal Fintech company, and the three business chains are clearly disassembled.

How Crypto Helped Ripple

If it's not much to make money from the business itself, then what does Ripple rely on to make money? The answer is simple: sell coins.

The protracted lawsuit between Ripple and the SEC was triggered by the sale of coins. The SEC accused Ripple of selling more than $1.3 billion in XRP to 1,278 institutions to finance the company. The SEC considered XRP to be an unregistered security, an act that violated federal securities laws and ordered Ripple to pay a fine of up to $2 billion. Finally, in August 2023, the court ruled that Ripple would only have to pay about $125 million, but the judge also mentioned that its "On-Demand Liquidity" service could have crossed the line.

Why is Ripple able to sell so many coins?

As mentioned earlier, On-Demand Liquidity(ODL) is the core of Ripple's cross-border payment solution. As long as the liquidity of XRP is ensured, all parties do not need pre-funding and can achieve currency exchange through XRP. Based on this, ODL provides Ripple with continuous liquidity support for monetization, considering that Ripple is the largest holder of XRP. Moreover, as the bridge currency for cross-border payments, XRP should obviously not be defined as a security but as a currency.

On-Demand Liquidity is actually one of the most brilliant ways to kill three birds with one stone in Ripple's business.

Ripple closely binds business needs to the circulation of XRP, and the liquidity of XRP in business scenarios not only provides the foundation for Ripple's narrative, but also makes its operation in the capital market more handy.

A high-end financial populist experiment

Ripple's business model has actually gradually shifted from product to capital operation, and has gradually evolved into a "market consensus-driven" way of making profits, which is why we laugh at Ripple as a blue-chip meme that only fluctuates with favorable policies.

In my opinion, Ripple's business logic is a clever "financial populist experiment". It engages mainstream financial institutions by packaging the pain points of cross-border payments, while capitalizing on Crypto retail's cognitive biases to amplify the strategic significance of its business. This also allows Ripple's business operation to move away from the simple "business-driven profit" path of traditional Fintech companies, and into a high-risk and high-return field that relies more on "market narrative" and "capital logic".

We have no way of knowing what the original intention of the project party is, whether it is to obtain initial funds with the help of capital operation to promote industrial progress, or to borrow products with a certain value to play the game of capital arbitrage. But there's no denying Ripple's subtle grip on financial populism.

In the financial market, value creation and value perception are often not completely equivalent, especially in the highly speculative environment of Crypto, where "market consensus" itself can constitute a business model, and Ripple is a typical example of this model. Rather than relying solely on product growth to drive revenue, as traditional Fintech does, or relying solely on liquidity bubbles as pure crypto speculative projects, it deftly weaves its way through the compliant financial system, shaping credibility with institutional endorsements while amplifying its narrative with policy and market sentiment.

Is Ripple really creating value or making faith? The core of high-end financial populism often lies in this ambiguous boundary.