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What is behind the surge of XRP's market capitalization by 50 billion USD?
Author: insights4vc Source: substack Translation: Shan Ouba, Golden Finance
Over the past week, the price of XRP has increased by approximately 60.96%, rising from $1.46 to $2.35, with a market capitalization exceeding $130 billion. This article will briefly analyze the historical development, ecosystem, and recent advancements of Ripple (the company behind XRP) in terms of real-world asset (RWA) tokenization and regulatory engagement.
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). At the core of the Ripple ecosystem is the 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 for modern financial infrastructure.
Latest Developments of 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-world 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 a security, allowing it to be relisted on U.S. and other international exchanges. 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 rate cut of 50 basis points has triggered a rise in risk assets, leading to a rebound in the crypto market. Additionally, the launch of the Ethereum ETF in the U.S. attracted $552 million in capital inflows.
• Regulatory Environment: The SEC has appealed part of the ruling in the Ripple case but acknowledges that XRP itself is not a security. Meanwhile, countries and regions like Japan, the UAE, and Hong Kong have adopted more crypto-friendly regulatory policies, contrasting sharply with the enforcement actions in the United States.
• Global Expansion: Ripple has obtained regulatory approval in Dubai and is promoting crypto innovation through strategic investments and advocacy activities.
With the growth of the market led by crypto ETFs and the upcoming U.S. presidential election, 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
• XRP Ledger Co-founder: Arthur Britto
• Chief Financial Officer (CFO): Jon Bilich
• Chief Legal Officer (CLO): Stuart Alderoty
• Co-founder: Jed McCaleb (now co-founder of Stellar)
Ripple Labs, Inc. (XRP) Financing Overview - Total Financing Amount: $294.5 Million
Financing Round:
Date: April 11, 2013
Financing Amount: Not disclosed
Investors: Andreessen Horowitz (a16z), Lightspeed Venture Partners, Vast Ventures
Date: May 14, 2013
Financing Amount: Not Disclosed
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: 400 million USD
Some investors: Santander, CME Ventures, SeaGate.io Technology
Date: September 15, 2016
Financing Amount: 55 million USD
Certain Investors: SBI Investment, Accenture, Santander, CME Ventures, SeaGate.io 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 fixed supply of 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 holdings, 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 delayed due to waiting for regulatory approval. Ripple is working with the New York State Department of Financial Services (NYDFS) to meet stringent regulatory requirements and maintain high operational standards.
Overview of RLUSD:
• Announcement Time: April 2024
• Asset Backing: Fully backed by USD deposits, short-term U.S. Treasury securities, 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 regarded as a significant contributor to this rapidly expanding sector.
Key Indicators (December 5, 2024)
XRP Ledger: Detailed Overview
Unlike traditional Proof of Work (PoW) or Proof of Stake (PoS) blockchains, XRPL employs a federated consensus model that allows validators to achieve agreement on the ledger state without mining or staking. The consensus protocol is designed to improve efficiency, reduce latency, and decrease computational overhead, enabling fast transaction finality.
Validator Network and Unique Node List (UNL)
The XRPL network consists of more than 109 validators distributed globally. A subset of these validators forms the unique node list (UNL), which is crucial for achieving consensus. The UNL is made up 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 publish an UNL, the default UNL is heavily influenced by Ripple Labs and the XRP Ledger Foundation.
Centralization Issues:
The default UNL planned by influential organizations has raised questions about centralization issues. Critics argue that the selection process for trusted validators is not entirely permissionless and may undermine the decentralized spirit of blockchain technology. However, supporters emphasize that users can independently modify their UNL, allowing for a certain degree of decentralization based on individual trust preferences.
Consensus Process
The consensus process in XRPL is conducted through iterative rounds, where validators propose and agree to include a set of transactions in the next ledger version. The process includes:
This mechanism ensures that all participants agree on the state of the ledger and the order of transactions without the need for 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 approximately 1,500 transactions (TPS) per second. 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 handles transactions at a rate 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 feasible for users who frequently trade and make small payments, aligning with the ledger's goal of facilitating efficient value transfers.
Trust limits 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 2 XRP to be reserved. These reserves serve as a spam prevention measure to prevent ledger bloat and block malicious activities.
Trust Line Function:
Ripple Mechanism
Rippling in the XRP ledger (XRPL) can facilitate efficient net settlement by adjusting the token balances between interconnected trust lines, thereby bypassing the direct involvement of issuers. 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 enables programmable functions 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 Sidechain
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 automatic market maker of XRPL (AMM) can facilitate decentralized token trading and liquidity provision directly on the ledger, supporting:
This native AMM enhances the appeal of XRPL in the DeFi ecosystem.
Detailed 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 conflicting transaction will be validated, eliminating the need for centralized dispute resolution.
Ledger Structure
Each ledger version includes:
This structure creates an immutable history record, 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 will 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 made through median voting.
Enhanced Activity: Negative UNL
To maintain progress during interruptions, Negative UNL temporarily excludes unavailable validators, adjusts the quorum threshold, and reintegrates 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 complexities of navigating the ever-changing legal landscape of blockchain and digital assets.
Key Milestone:
Conclusion
XRP's market capitalization has recently soared 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 finance initiatives and ETF applications) indicate progress, but it also faces obstacles, particularly in navigating complex legal and global frameworks. Although the SEC's rulings have clarified XRP's status in certain contexts, uncertainty remains, highlighting the need for a cautiously optimistic view of its role in the evolving financial ecosystem.