Yesterday, a brief remark from the President sent $XRP surging, briefly surpassing $ETH to claim the second spot in Fully Diluted Valuation (FDV). Despite its widespread reputation, few truly understand what Ripple actually does. Is Ripple an elaborate scam? If not, why do we rarely encounter real-world users? How big is Ripple’s business, and can it justify its current valuation? If not, what is it relying on?

What Kind of Business Is Ripple In?

Ripple is in the business of cross-border payments. The traditional cross-border payment process is divided into information flow and capital flow. At the information flow level, SWIFT is used to unify the standards of various remittance countries; at the capital flow level, clearing and settlement are completed by the originating bank and the beneficiary bank. If there is no direct relationship between the two, funds need to be transferred through the corresponding bank or the central bank. Most fund transfers need to go through multiple intermediary banks. Therefore, problems such as: 1. Time-consuming, 2. High cost, 3. Low transparency will arise.

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

First, let’s talk about the solution under stable currency: local OTC/payment companies receive foreign exchange, and they convert it into USD at the bank. USD needs to go to OTC, such as Cumberland, to USDT, and then USDT completes the transfer on the chain. At the receiving end, the OTC conversion from USDT to USD must be completed again, and then the exchange is converted into local currency through the bank. Under this solution, the transfer and settlement of USDT become very simple, but the difficulty and moat lies in the entire OTC network. If you use USDC, this process will be more convenient, because you can complete the deposit and withdrawal directly with Circle at a compliant location.

The figure below is a flow chart using USDT on one end and USDC on the other as an example. Actually,The red box in the picture below is the key to the entire stablecoin cross-border payment. That is, there are OTCs that can provide USDT deposits and withdrawals at any time. The amount of funds they occupy is not small. This is the “most expensive” link in cross-border payments, so it is also the place where Tether has the most moat., this is exactly what I said in “Consensus in the cracks: Tether and the new global financial order“Mentioned in: Various channels and exchange platforms have become Tether workers to help it spread its network to the world.

Ripple is actually a simpler solution than stablecoins. Its process is that foreign currency goes to CEX through a local bank or payment institution and is exchanged for XRP. The XRP is transferred to the CEX of the receiving country, and then the XRP is exchanged for local currency. The figure below takes Brazil to Thailand as an example. The currency link is BRL -> XRP -> BHT.In other words, Ripple is using XRP as a bridge currency to recreate a foreign exchange market.

Ripple actually provides a very clever and efficient cross-border payment solution. In the traditional SWIFT or stablecoin cross-border payment scenario,Capital occupation has always been a pain point. Every time a currency exchange is performed, the bank or OTC usually needs to inject sufficient funds into the account in advance to ensure that the entire payment process is completed smoothly. For example, in the stable currency scheme, the bank must have enough USD for currency 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 fund use. But the advantage of Ripple is that it cleverly uses the liquidity mechanism of CEX to avoid the pain point of preparing cash in advance. By exchanging assets directly on CEX, this is what it comes up withOn-Demand Liquidity On-demand liquidity。

What is the key to rebuilding this foreign exchange market?

Ripple is not just doing an ordinary business, it is more like promoting a new cross-border remittance model. From a compliance perspective, different regions have different policy environments and available transaction models, and Ripple is trying to single-handedly promote this new market change through its own efforts.

On Ripple’s development path, there are two key elements:

1. BankBD: Let banks be willing to use XRP, a cross-border payment solution.
2. CEX market depth: Ensure that XRP trading markets in various regions have sufficient liquidity to support global currency exchange.

To this end, Ripple has done nothing less.

Let’s talk about the first point first. Ripple was not directly involved in many currency-related businesses before 2017. Its initial goal is to replace SWIFT, rely on the advantages of the information layer, cooperate with many banks, and promote the education process of the market. In this way, Ripple has gradually made major banks around the world its strategic partners. For example, in September 2016, SBI (Strategic Business Innovator) acquired 10.5% of Ripple’s shares for 55 million. In the same year, Ripple also received investment from SCB (Siam Commercial Bank). And by 2017,Cuallix is ​​the first financial institution to try to promote XRP as a bridge currency, along with the epidemic, businesses using XRP as a bridge currency have expanded in large numbers.

Here we also explain why it is rare to find real use cases of Ripple, because Ripple’s cross-border payment solution is not directly exposed to ordinary users or merchants. It mainly operates through bank channels, and merchants or remittance recipients do not need to know the remittance route behind the bank. In fact, as long as banks are willing to dedicate some of their business to Ripple, it will be enough to support the entire business model.

Let’s talk about the second point. Ripple must establish a global CEX network to ensure the depth of XRP transactions, 7*24 hours of trading, small slippage, and smooth deposit and withdrawal. On this end, Ripple has also made great efforts. For example, in 2019, Ripple invested in Bitso, the first CEX in Mexico, and gradually expanded its market influence to Brazil and Argentina. At the same time, Coins.ph, a mainstream exchange in the Philippines, became an authorized partner of Ripple and became its preferred CEX for XRP payment, further increasing Ripple’s market penetration.

Ripple is actually a highly BD-driven business. 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. This situation is beyond the reach of ordinary people.

How is Ripple doing in this business?

In 2023, the volume of global cross-border payments will be approximately190 trillion. In contrast, Ripple has so far had about 35 million cross-border transactions and a transaction volume of about 70 billion. This volume is only as small as a sesame seed compared to the size of global cross-border payments.

I interviewed a local OTC dealer in Latin America. Their annual cross-border transaction volume is about 1 billion to 1.5 billion US dollars. This is just an ordinary OTC desk. From this point of view, Ripple’s transaction scale is insignificant compared to the market influence of stable currency payment.

According to industry practice, cross-border payment fees are usually between 1% and 2%. Based on this calculation, if Ripple relies solely on cross-border payment business revenue to make profits, it will obviously be a drop in the bucket.

What’s more, in the early days, Ripple had to provide a lot of subsidies in order for banks and payment companies to use its solutions. For example, in the first quarter of 2020, Ripple gave money to the once world’s second largest remittance company.MoneyGram paid $15 million in subsidies, incentivizing them to use the Ripple network.

What’s next for Ripple – expanding custody and stablecoins

Unlike Tether, which directly relies on the global liquidity of the U.S. dollar to promote the expansion of U.S. dollar hegemony, Ripple’s ecosystem relies entirely on self-built networks and alliances to maintain. The bottleneck of this payment business is obvious. Therefore, Ripple also needs to think about how to break through this bottleneck. Based on its customer advantages on the enterprise side, Ripple has chosen three business lines for expansion - Payment, Custody, and Stablecoin.

May 2023,Ripple acquires Swiss custodian Metaco for $250 million。

June 2024,Ripple acquires Standard Custody, Standard has nearly 40 currency payment-related licenses in the United States, a major payment institution license (MPI) from the Monetary Authority of Singapore (MAS), and a VASP (Virtual Asset Service Provider) registration from the Central Bank of Ireland. Its CEO Jack McDonald also serves as the senior vice president of Ripple stable currency, which actually paves the way for Ripple to issue stable currency.

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

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

How Crypto Helped Ripple

If the business itself doesn’t make much money, then how does Ripple make money? The answer is simple:sell coins。

The protracted lawsuit between Ripple and the SEC started over the sale of coins.

SEC accuses Ripple of selling more than $1.3 billion in XRP to 1,278 institutions, to finance the company. The SEC believes that XRP is an unregistered security, a violation of federal securities laws, and requires Ripple to pay a fine of up to $2 billion. Finally in August 2023,Court rules that Ripple only has to pay about $125 million, but the judge also mentioned that its “On-Demand Liquidity” service may have crossed the line.

Why can Ripple sell so many coins?

We mentioned earlier that On-Demand Liquidity (ODL) is the core of Ripple’s cross-border payment solution. As long as the liquidity of XRP is guaranteed, all parties do not need pre-funding and can use XRP when exchanging currency. Based on this, ODL provides Ripple with continuous liquidity support. After all, the largest holder of XRP is Ripple itself. Moreover, as a bridge currency for cross-border payments, XRP should obviously not be defined as a security but a currency.

On-Demand Liquidity is actually a very good way to kill three birds with one stone in Ripple’s business.

Ripple closely binds business needs to the circulation of XRP. The liquidity of XRP in business scenarios not only provides the foundation for Ripple’s narrative, but also makes its operations in the capital market easier.

A high-end financial populist experiment

Ripple’s business model has actually gradually shifted from products to capital operations, and has gradually evolved into a “market consensus-driven” profit method. This is why we laugh and call Ripple a blue-chip meme that only follows favorable policy fluctuations.

In my opinion, Ripple’s business logic is a clever “financial populist experiment.” It attracts the participation of mainstream financial institutions by packaging the pain points of cross-border payments, and at the same time uses the cognitive bias of Crypto retail to amplify the strategic significance of its business. This also allows Ripple’s business operations to break away from the simple “business-driven profit” path of traditional Fintech companies and enter a high-risk, 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 side is, whether to use capital operations to obtain initial funds to promote industrial progress, or to borrow products of certain value to play a capital arbitrage game. But what is undeniable is Ripple’s exquisite control of financial populism.

In the financial market, value creation and value recognition are often not completely equivalent. Especially in a highly speculative environment like Crypto, “market consensus” itself can constitute a business model, and Ripple is a typical case of this model. It neither relies entirely on product growth to drive revenue like traditional Fintech, nor does it rely entirely on liquidity bubbles like pure Crypto speculative projects. Instead, it skillfully shuttles between compliant financial systems, using institutional endorsements to shape credibility, and at the same time amplifying its narrative with the help of policies and market sentiments.

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

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