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Ripple is a financial technology firm that operates as both a cryptocurrency network and a digital payment network. Chris Larsen and Jed McCaleb founded Ripple, and its first release was in 2012.
As a payment settlement and remittance system, Ripple’s main feature is similar to SWIFT, the international money and security transfer system used by banks and financial intermediaries.
Ripple has its own cryptocurrency and a B2B cross-border payments network and is a Fintech unicorn worth $10 billion.
Ripple Labs, Inc. is a company that operates a global payment network powered by Blockchain technology. In addition, it is developing RippleNet, a decentralized enterprise payment network.
Ripple Business Model enables global money transfers by connecting banks, payment providers, digital asset exchanges, and corporates.
Among the company’s solutions are:
XRP, a digital asset for payments in the form of cryptocurrency;
xCurrent, a software platform for banks to provide cross-border payments services;
xRapid, a solution for payment providers and other financial institutions to manage liquidity costs; and
xVia, a solution for corporates, payment providers, and banks to send payments across networks using a standard interface.
What is Ripple?
Ripple is a financial company that specializes in online payment settlements and is also the creator of the cryptocurrency XRP.
Ripple earns money by charging transaction fees, selling XRP, making money on investments, and charging interest on loans.
Ripple is a business-to-business cross-border payments company that provides an alternative to the correspondent banking system, which is criticized for being slow, opaque, and expensive.
Ripple was founded as a peer-to-peer trust network powered by social media. A network enables users to circumvent banks and make loans, and open credit lines with one another. However, the network failed to gain traction.
XRP was launched to act as a medium of exchange between currencies or networks. Ripple Labs was formed in September 2013 when OpenCoin merged with Ripple Labs.
Ripple bills itself as a global payments network, and central banks and financial institutions use its services. In addition, the company uses XRP to facilitate currency conversion in its products.
Ripple recently received an estimated worth of $10 billion and provided financial institutions with its RippleNet payments network and XRP cryptocurrency.
Ripple, which was founded in 2012, has quickly risen to prominence as a blockchain and cryptocurrency project. The company in venture capital funding has raised a total of $293 million.
What is the Value Proposition of Ripple?
A fundamental principle of Ripple is to facilitate faster and more cost-effective transfers between its users — a point reflected in its high-level protocols, which are open-source, decentralized, and peer-to-peer.
The Ripple platform supports its own native cryptocurrency, XRP, and a digital payment protocol.
Thus, to solve the “money problem,” Ripple has been looking for partnerships with banks and other traditional credit institutions in order to institutionalize the cryptocurrency market.
Specifically, Ripple’s vision is “to enable the world to exchange value in the same way that information is exchanged today – the Internet of Value,” and its mission is to enable people to “transfer money globally using the power of blockchain technology.”
Ripple is attempting to achieve this vision through its RippleNet payments network, which currently connects over 300 financial institutions.
How Does Ripple Work?
Ripple is a currency exchange technology and a payment settlement technology that enables global financial transactions.
RippleNet enables any type of institution to establish its own node. Ripple operates these nodes in collaboration with financial institutions (such as banks). Axis Bank, Bank of America, and Santander are among the partners.
Ripple has also created its own cryptocurrency, called XRP. Ripple’s payment network is intended to use the currency.
RippleNet and XRP do not rely on blockchain technology, unlike other cryptocurrencies such as Bitcoin (which is based on blockchain technology). Since XRP tokens are not mined or based on proof of work or proof of stake, they cannot be mined or developed.
Ripple developed its own consensus algorithm, dubbed the Ripple Protocol Consensus Algorithm (RPCA). All the nodes in the network must unanimously agree on the validity of transactions.
The XRP tokens currently in circulation have all been pre-mined. In addition, because RippleNet does not rely on mining validation, its transaction speed is significantly faster (and more eco-friendly).
There are 100 billion pre-mined XRP coins in total. RippleNet has around 45 billion of these floating around at the moment (available for use in transactions).
How Does Ripple Make Money?
Ripple earns money by offering XRP as a currency, making a profit from investments charging transaction fees, and charging interest for their loans.
Let us understand the Ripple Business Model in detail:
Payment Fees
RippleNet charges a small transaction fee for transferring money from A to B. XRP transactions cost about 0.00001 per transaction. Therefore, the value of $0.97 means that each transaction will cost approximately $0.00097.
The Ripple Business Model is to compete on price while profiting from its ability to process more transactions. For example, Ripple can process up to 50,000 transactions per second (TPS), compared to Visa’s 1,500 TPS.
Ripple is a cheaper option if you transfer money to international destinations, which is a great advantage for consumers and businesses. Transfers to foreign countries can cost up to 10% of the amount sent.
Smaller banks lack foreign reserves and rely on deposits at larger, local banks because they do not have foreign reserves. The bank then charges these depositors a fee to hold the money.
Furthermore, the higher transactions it processes (i.e., the more vital it becomes to businesses), the more valuable XRP becomes (remember that Ripple still owns around 55 percent of all XRP).
Sales of XRP
A total of 100 billion units of the cryptocurrency XRP were issued when it was launched in 2013. Larsen and McCaleb retained 20 billion, and the remainder was divided between the remaining co-founders and Ripple Labs.
With tight supply control, detractors quickly emerged, sending the coin’s value plummeting. Cryptocurrencies are, after all, based on a decentralization philosophy. Thus, if a single company controls most supply, the situation is not dissimilar from that of a central bank.
The result was that Ripple announced in May 2017 that it would hold 55 billion XRP in escrow, releasing up to (!) 1 billion each month.
Because of this, whenever XRP is dumped on the market, Ripple makes money.
CoinMarketCap estimates that one XRP is currently worth $0.97, which means that Ripple may earn up to $1 billion a month in XRP.
Ripple has also committed to not flooding the market with XRP to avoid depreciating the currency (more supply equals lower price).
Because of this, the company agreed to sell an essentially small portion of it to exchanges such as Binance. To stimulate XRP’s ecosystem, it concentrates on institutional investors rather than individuals.
Additionally, the corporation publishes a quarterly report showing how many XRP it has sold and what value it now holds.
Profits from Investments
The Ripple project has invested in startups like Coil, Keyless, and Tranglo since its launch in 2012.
In large part, these investments are focused on increasing Ripple’s XRP currency adoption and usage. Of course, as it is used more (and at a higher price), it becomes more valuable.
Ripple makes these investments in XRP, which can then be converted to other cryptocurrencies or cashed out in fiat currency.
Ripple can profit from these investments by eventually selling the shares it acquires in a transaction at a higher price point. These sales may occur as a result of the businesses going public, being purchased, or as a result of a secondary sale.
Furthermore, Ripple might generate revenue through dividend payments, which is highly improbable because Ripple invests in companies that are still losing money.
The investments are made through a subsidiary called Ripple X. (previously known as Xpring).
Interest Fees
Ripple announced a credit product in August 2020. Line of Credit offers clients the ability to obtain a loan effectively via On-Demand Liquidity (ODL).
XRP will serve as the loan’s currency. Borrowers can make use of their XRP as collateral. Since the loans are almost certainly going to be made to institutions, the risk should be minimal.
Ripple makes money by charging clients interest on these loans. The corporation does not publicly disclose interest rates. TrueFi, Ave, and BlockFi are all competitors of Ripple.
Success Story of Ripple
Ripple was founded in 2012 by Chris Larsen, Jed McCaleb, David Schwartz, and Arthur Britto in San Francisco, California.
McCaleb and Larsen have always been at the forefront of their respective firms, while Britto has always remained in the background (industry insiders question whether he exists).
Before joining Ripple, Chris Larsen established two significant businesses. First, he founded one of the first online mortgage lenders in 1997, E-LOAN. The company went public two years later. E-Loan was purchased by Banco Popular, a Puerto Rican bank, in August 2005 for $300 million.
Larsen’s first successful exit led him immediately back into entrepreneurship. The same year, he founded Prosper Marketplace, a peer-to-peer lending platform.
Since its inception, Prosper has raised hundreds of millions of dollars in funding and now employs nearly 500 people.
As for McCaleb, his business ventures tended towards chaos. For example, he co-founded eDonkey2000, a file-sharing tool similar to Napster, in 2001. eDonkey became the most popular file-sharing network on the Internet by 2004, processing an average of approximately 2 billion files shared by more than 3 million members.
The more famous version of eDonkey2000, however, ran into legal troubles quickly as well. A $30 million lawsuit filed by the RIAA in 2006 led McCaleb and co-founder Sam Yagan (who later founded OkCupid) to shut down the business.
He founded the Code Collective after eDonkey failed to profit, which was tasked with creating The Far Wilds. His major epiphany, however, occurred two years later.
Satoshi Nakamoto first created Bitcoin in 2009. Jed recognized the potential of the Blockchain and cryptocurrencies in general. So he immediately turned over the game’s development to a group of enthusiasts and began working on a cryptocurrency project.
Mt.Gox, one of the first Bitcoin exchanges globally, is headquartered in Tokyo, Japan. Mt.Gox became the world’s largest cryptocurrency exchange within months of its opening (July 2010), processing 70% of all Bitcoin transactions.
Ultimately, McCaleb sold the business to Mark Karpelès a year later for an undisclosed price while maintaining a minority stake. After Mt.Gox’s hack in 2014, 850,000 bitcoins were stolen, and the company went bankrupt.
The excellent news for McCaleb is that he had already begun work on better, more extensive projects. In addition, Bitcoin’s underlying technology, the Blockchain, is soon recognized as having some significant technological limitations (such as high energy consumption).
McCaleb enlisted the help of some of the most brilliant minds in technology to design better money. David Schwartz, who was a software engineer, and manager with decades of experience in the technology industry, became his first co-founder (and Chief Cryptography Officer).
Futures expert Arthur Britto later joined as chief strategist. In addition, the founder of the Kraken Exchange, Jesse Powell, invested $100,000 to help the team launch.
All three founders of the company are considered geniuses, but none has the skills needed to run a large corporation effectively.
Larsen subsequently became the public face of the newly created company after leading companies in the FinTech industry to successful IPOs and exits. Ripple Labs was initially known as OpenCoin Inc. but eventually changed its name to Ripple.
The first two years of operation were devoted to technological development and fundraising. Ripple Labs raised $1.4 million in May and $3.5 million in November of 2013.
However, shortly after that, flaws began to appear in the founding team’s relationship. All of it started with a shift in McCaleb’s personal life. A woman he encountered along the way, Joyce Kim, was highly educated, having attended Harvard, Cornell, and Columbia Law.
Kim, who was seeking money to expand her business, met Jesse Powell, the first Ripple investor because she needed the money to start. In the end, McCaleb and his family were separated as a result of her appeal for McCaleb’s money.
McCaleb acquired Kim’s SimpleHoney, an iPhone application based on wish lists, from his founding partners in April 2013. Kim joined Ripple Labs as Chief Engagement Officer, which she held for most of her time there.
The public was only given a taste of what lay beneath the surface. Kim was advocating behind the scenes for a variety of goals within Ripple.
At least once, she seemed to be claiming that Jed was Satoshi Nakamoto, the Bitcoin founder. She reasoned that it would boost Ripple’s viral growth and establish crucial legitimacy.
Both Kim and McCaleb had essentially left the organization by summer 2013, but not before committing a few more acts of revenge. McCaleb spoke with Patrick Collison about Stripe, one of the world’s leading FinTech companies, shortly after they left.
As a result of their discussion, Stripe has announced its intention to buy Ripple Labs. The deal, however, did not work out because neither of the co-founders was present when the discussions took place.
McCaleb posted the following on Ripple Lab’s message board after months of hostility between the two parties:
“I intend to begin selling all of my remaining XRP in two weeks. As a reminder, XRP sales are imminent.”
What is the problem? McCaleb and Larsen received 18% of the total XRP (100 billion) currently in circulation. Therefore, the signaling effect (i.e., lack of founding belief) of a sale of this magnitude would obliterate the currency’s value.
Fortunately, Larsen and the rest of Ripple’s board of directors convinced McCaleb not to proceed with the sale. So, for the first year, they restricted his weekly XRP sales to $10,000 (and they will raise the thresholds in the future).
McCaleb announced his new business, Stellar, a month after his viral article. Stellar’s software and intended user base are very similar to Ripple’s, suggesting that the two projects will be fierce competitors for years to come.
McCaleb was no longer in the picture, so business, as usual, had to resume. Fidor Bank announced in the same month as McCaleb’s forum post that it would test Ripple’s overseas deposit and transfer platform. In September, two other banks in the United States (CBS Bank and Cross River Bank) followed suit.
Unfortunately, Ripple’s 2015 started in much the same way as 2014. The US Department of Treasury fined Ripple $700,000 in May to violate Bank Secrecy Act restrictions and fail to register with FinCEN.
This was countered by the company’s $28 million Series A investment round in the same month. A majority of the additional funds were used to develop new markets, focusing on Asia and Europe.
Payment network joined European banks CBC, UBS, Santander, and four others in March 2016 after establishing a new office in London. Santander, for instance, has integrated the technology into its One Pay Foreign Exchange program.
The $55 million Series B financing completed in September expanded the firm’s bank network by adding Standard Chartered Plc, Montreal Bank, and Mizuho Financial Group.
It also created the Global Payments Steering Group in collaboration with several central banks, including Bank of America Merrill Lynch and the Royal Bank of Canada, to make a global standard for monetary transactions based on a rules-based blockchain payment network.
CEO Larsen resigned his position as CEO on November 1, 2016, and became a board member. Brad Garlinghouse, who joined the firm a year ago as COO and had previously worked at AOL and Yahoo, succeeded him.
In terms of market capitalization, the underlying currency of Ripple, XRP, ranked third after Bitcoin and Ethereum.
It began investing in new ventures in March 2018, following several of its competitors, such as Binance. This made XRP more popular by emphasizing startups that intended to use it. Most notable was the $265 million investment in XRP into Coil, a content creation platform founded by Ripple’s former CTO Stefan Thomas.
Ripple reached 200 partners in January 2019, including banks and other payment service providers that implemented (but primarily tested) its technology. Unfortunately, a few of these collaborations raised significant questions.
In the beginning, skeptics felt that Ripple’s partners weren’t utilizing the technology but instead experimented with it to appear more innovative. In addition, because Ripple owns almost half of the total supply of XRP, the currency was being used to convince partners to adopt its service or list XRP on their exchange.
The business was rumored to have bribed America’s largest cryptocurrency exchange, Coinbase, to offer XRP in March 2019. In addition, the company paid upwards of $50 million (in XRP) to MoneyGram to deploy RippleNet technology.
A $200 million round of investment raised in December 2019 valued Ripple at $10 billion, its most enormous amount to date.
Although Ripple had massive financing round and acquired new partners constantly, its focus eventually shifted to software rather than payment networks. So, Ripple developed the XRP Ledger (XRPL) to cope with demand.
Additionally, it has experimented with other finance verticals. Ripple, for instance, developed a product that allows clients to obtain XRP-based loans in August 2020.
A shocking revelation occurred in December 2020. SEC filed suit against Ripple Laps, claiming the company issued unregistered securities to investors in exchange for XRP.
Coinbase quickly removed Ripple Labs from its exchange, while MoneyGram terminated its relationship. An investigation is underway. Garlinghouse, the CEO of Ripple, announced in May 2021 that he expects the company to go public once the case is resolved.
Ripple’s payment network currently serves close to 400 customers. Furthermore, the company employs approximately 500 people in offices around the world.
What is the Funding, Valuation, and Revenue of Ripple?
Ripple has raised $304.4 million across 13 rounds of venture capital funding, according to Crunchbase.
SBI Investment, Tetragon Financial Group, Mouro Capital, and Route 66 Ventures are notable investors.
Ripple’s current valuation is $10 billion, which it received when it raised the Series C investment in December 2019.
Since Ripple is a privately held company, revenue figures are not required to be disclosed.
Key Takeaways from Ripple Business Model
A decentralized digital payment network that runs on the Blockchain and has its currency, XRP, Ripple is a network of decentralized digital payment systems. Ripple’s consensus mechanism relies on bank-owned computers to confirm transactions rather than blockchain mining.
The Ripple transaction consumes less energy than bitcoin transactions, is confirmed in seconds, and has a lower transaction cost. In contrast, bitcoin transactions consume more energy, take longer to ensure, and have a higher transaction cost.
Ripple is among the top five most valuable blockchain-based coins in terms of market capitalization.
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