Why Ripple (XRP) is risky business
Ripple Labs has complete control over XRP, and it makes XRP a risky token.
When many influencing voices talk about decentralized finance (Defi), private investors hope to get rich fast by investing in the XRP token. However, the XRP token is centrally run by Ripple Labs, making it a centralized token. Although their website claims that they “build decentralized financial solutions for the real world,” it is simply not true. Although the transaction system is integrated into the real world, and their products has been used by large companies that work with money transfers, such as American Express and MoneyGram. And it is a cheap and fast way to transfer money. But the critical issue remains; XRP is centralized and risky.
The value of XRP is tied to what happens at Ripple Labs Inc.
On January 7th, 2018, XRP was worth $130.8 billion with a price of $3.84, according to Coinmarketcap. At that moment, the Ripple founder, Chris Larsen, became one of the wealthiest persons in the United States, personally owning 5.1 billion XRP. The circulating supply of tokens is appr. 45 billion in 2021, and Ripple Labs an additional supply of appr. 50 billion XRP tokens that they can put out on the market at any given time.
Jeb McCaleb, a co-founder of Ripple Labs (and Mtgox.com), left the company in disagreement and started a similar company called Stellar Lumens (XLM token). In a settlement with Ripple Labs, he received $148 million, which was sold in December 2020, and this led to a price drop of -6,2%. According to decrypt.co, He holds over 251 million XRP as of today.
XRP valuation
People put their hopes in that XRP will reach $1000, and it is not reasonable; XRP would then need a market cap of $100 trillion to get a figure like that. As a comparison, Apple was valued at $2 trillion in 2020, much higher than the GDP in highly developed countries, such as, Italy, Brazil, and Russia. Another reasonable comparison is the total value of gold (on earth), and according to Gold.org, the value of gold is $10.6 trillion. Let us pretend that in 2022 the market cap goes up to as high as $0.5 trillion, then the price would be $11 with the current supply. But then if Ripple Labs would release the total supply the value would be $5, and that is pretty close to $3.84. The current market cap need to grow 20 times to reach those numbers.
Ripple and XRP
Many discuss Ripple and XRP interchangeably, but Ripple is a system for exchanging currency and more. XRP is the token/coin issued by Ripple Labs Inc, a US-based company. Ripple Labs has no mining activities; instead, the transactions are powered by a centralized blockchain, making it very fast and reliable, but the power and trust lie within Ripple Labs and its workers.
Lawsuit
The SEC is claiming that the company offered people to initially buy XRP tokens. They believe that Ripple Labs violated federal laws when they sold XRP to retail consumers, in addition to which the founders are accused of personally earning about $ 600 million. In connection with the lawsuit being reported in the media, the value of the company’s token XRP plummeted (read more).
