Ripple Would Be Unprofitable Without XRP Sales, CEO Admits
California-based fintech company Ripple would not have been where it is today without the monthly selling from its massive holding of XRP tokens, an admission from its CEO suggests.
In an interview with the Financial Times published on Friday, Ripple’s CEO Brad Garlinghouse was pressed on Ripple’s financial situation and revenue sources, but appeared hesitant to give clear answers with regards to XRPs role in funding Ripple’s operations. The article said:
“When pressed on Ripple’s own profitability, Mr. Garlinghouse noted that Ripple, the company, was cash flow positive. How much of that cash flow was coming from service provision as opposed to sales of pre-existing XRP stock was less clear.”
Pressed further about XRP’s specific role as a revenue source for Ripple, Garlinghouse said:
“Well XRP is one source. I don’t know how to answer that because if you took away our software revenues, that would make us less profitable. If you took away all our XRP, that makes us less profitable. So I don’t think about it as one thing,” the CEO said, while adding later: “We would not be profitable or cash flow positive [without selling XRP], I think I’ve said that. We have now.”
A popular trader and analyst Luke Martin, reacted by tweeting: “Dumping XRP on you is how Ripple stays alive.”
Also, Martin Walker, a director of banking & finance at industry organization Center for Evidence-Based Management, noted that even XRP users – such as remittance company MoneyGram, co-owned by Ripple, – sell the token whenever they get it, implying that the more professional users XRP attracts, the more tokens will be sold on the open market:
Luke it gets better, Ripple pay Moneygram in XRP to use their XRP based payments system. First quarter was over $2m, second quarter of usage almost $9m. Moneygram sell any XRP they receive. Agreement runs until 2023. Seems the more ODL used, more XRP gets sold on the open market.— Martin Walker (@MartinCWWalker) March 1, 2020
In the same article by the FT, MoneyGram confirmed that it is compensated by Ripple in XRP for developing and bringing liquidity to foreign exchange markets, facilitated by the On Demand Liquidity platform: “We refer to this compensation as market development fees.”
As reported in January, Ripple reduced sales of XRP from its escrow fund last quarter when it secured USD 200 million in funding. In September 2019, Garlinghouse confirmed that Ripple is selling XRP to some of their institutional clients at a discount.
The company has long been under suspicion for exercising a great deal of control over XRP, while also using the token mainly as a funding vehicle for its own operations. Although this would imply that Ripple has a vested interest in keeping the price of XRP up, the asset is still down by more than 90% from its all-time high in early 2018. Bitcoin, by comparison, is currently down about 55% from its all-time high.
As of press time on Monday (10:50 UTC), XRP is up by 0.6% over the past 24 hours to a price of USD 0.234. Meanwhile, bitcoin (BTC) and ethereum (ETH) were up by 1.6% and 1.5%, respectively.
The USD 500bn Card Didn't Help Ripple, XRP 'Stays in the Crosshairs'
Ripple is Like Amazon In Its Early Days, Says Brad Garlinghouse