One Does Not Equal the Other

Steven L. Miller
Published in
4 min readApr 26, 2021

Ripple’s Success may not Make XRP the Lucrative Investment Many Expect it to.

Ripple explicitly rejects the general rationale for the creation of cryptocurrencies. Facilitating decentralized trustless interactions between people. Instead, seeking to enhance existing financial infrastructure with its permissioned transaction network.

As opposed to most other projects which view themselves as revolutionary permissionless technologies that will upend the financial system as we know it. Think Bitcoin, Ethereum, etc…

This makes the token, XRP, created to make Ripple’s payment system work more smoothly a potentially interesting investment as a hedge in a portfolio of cryptocurrency investments. If crypto adoption falters it could still have value as a participant in the traditional financial system.

Whereas if the cryptosphere continues its current trajectory. It could always pivot and loosen up the restrictions on who and how transactions are conducted across its network. De-emphasizing the role regulated financial institutions play today.

What to look for

Three metrics provide a useful framework for evaluating XRP’s adoption in the markets Ripple is looking to serve

  • What is the moving average daily transaction volume in USD of XRP?
  • What is the average fee for a Ripple transaction over time?
  • How much lower is the average fee for a Ripple transaction versus traditional remittance payment channels over time?

Why These Metrics Are Important

The combination of these three metrics helps investors evaluate the pace of adoption in Ripple’s current focus on International transactions because:

  • The moving average daily transaction volume should be trending up over time as an indicator of its spreading adoption.
  • The average fee for a transaction should be coming down over time. Indicating scale and efficiency as it matures.
  • The average fee for a Ripple transactions needs to be lower than the incumbents to displace them. The percent its lower than the incumbents is important.
  • Presuming Ripple is able to lower its fees. If the incumbents react by lowering theirs. It erodes Ripples competitive advantage and lowers their chances for success.

Why the Focus on Remittances?

Incumbents have moved forward with domestic payment initiatives without integrating Ripple. Demonstrating an unexpected willingness to cannibalize existing revenues.

For example, in the US, the real-time payments initiative. A consortium of 23 banks representing 90% of domestic wire transfers incorporating similar concepts as Ripple to lower transaction costs for payments.

Making a payment using the network's blockchain technology will result in a cost reduction of 80% — 90% versus traditional wire transfers. Plus, recipients will have access to the funds immediately versus the delays associated with traditional transfers.

Now there are still some advantages to traditional wire transfers versus real-time payments. To start you are only able to make payments under $25,000 using the network.

While this may seem like a large sum of money. On a relative basis, in the institutional payments space, it is small.

The initiative does not include Ripple though. Domestic focused efforts in other countries like Japan appear to exclude them as well.

Ripple appears to wisely be focusing on the more byzantine world of international payments, specifically remittances.

Which is ripe for disruption given the high fees charged by incumbents today.

Ripple’s Value Proposition

Ripple’s standard transaction fee is .00001 XRP. At the current valuation of 1.09, as of 4/23/2021, this means the transaction fee is approximately 8bp. Which is highly competitive with the fees normally assessed for international transfer payments.

For example, fees assessed for remittances generally run between 800–1200 bp currently.

Imposing a small fee strengthens Ripple’s use case, serving as a small tax on legitimate transactions. A small fee does not deter authorized users from leveraging the network.

It does deter denial of services attacks and spam by making these activities unprofitable. Incorporating a fee inhibits activities that need to occur at scale, like these, to be profitable.

Ripple’s Constraint

Ripple’s ledger only stores XRP transactions. XRP’s value is tied to expanding the volume of transactions flowing through the ledger.

Any exchanges of XRP for fiat currencies. Results in a credit to the ledger and the ledger only shows the XRP side of the transaction.

Ripple’s focused on integrating with existing financial infrastructure and while transaction volumes involving XRP are rising. The value of transactions involving XRP is growing at a slower rate than transaction volumes overall for Ripple’s network.

This means as an investor you may not realize much in the way of gains from investing in XRP. Even if Ripple is successful in becoming a key piece of the international payments system.

The Supply Challenge

XRP is used to facilitate transactions in Ripple’s network. It has an initial supply of 100 Billion and no formal commitment to cap supply. Allowing more to be released if needed to keep things flowing smoothly.

This is negative from an investment perspective as it is not clear what the eventual issuance of XRP will be. Ripple’s need to support the utility of it’s transaction network will always supersede the priorities of token holders looking to earn a return. XRP’s value will never fully reflect the value of Ripple’s network.

Incentives are not aligned between XRP holders and Ripple. Like they are for capped supply utility tokens such as Sia.

As Ripple makes inroads into payment networks. XRP’s circulation naturally increases to keep the network operating efficiently.

Precipitating a negative feedback loop for XRP investors. Increased value in Ripple’s network from higher payment volumes requires an increased supply of XRP tokens in circulation.

By design, XRP holders cannot fully capture the increase in Ripple’s value from higher volumes. Additional XRP supply needs to be released to support the higher transaction volume on the network.

For a more bullish counterpoint please see The Internet of Value is already operational and it is ‘Powered by Ripple.

Thank you for Reading

Sign up for my newsletter to stay up to date on my latest cryptoasset research.

Connect: Email | Twitter | LinkedIn

Further Reading

There are 12 Quadrillion Reasons XRP Will Never be Worth $50 a Token

Originally published at



Steven L. Miller

Helping investors hack through the weeds to find the crypto gems at Musings at