Crypto firm Ripple boasts about the utility of its token, XRP, for cross-border payments. However, a sizeable percentage of XRP transactions seem to round-trip between related entities. As described by Forbes, some of Ripple’s financial practices appear to be misleading, round-tripping schemes.
On paper, Ripple’s sales volumes look healthy. The company’s top line seems to be increasing. It added new money transmitters in Asia and the Middle East. Ripple even seems confident that it’ll win its lawsuit with the Securities and Exchange Commission (SEC). Executives asked a judge to skip jury trial and rule on the case early, in summary judgment.
Most of this financial confidence comes from one, simple activity: liquidating XRP.
Ripple’s most lucrative activity: Selling XRP
Through various schemes, including opaque loans and transfers between partly-owned entities, Ripple has sold billions of dollars worth of XRP. All three co-founders of Ripple have personally sold over $150 million dollars worth of XRP, not to mention their beneficial equity in Ripple. Two became billionaires.
Selling XRP — and concocting various financial schemes that resulted in effectively-but-not-literally selling XRP — was the easy part.
Ripple conducted one of the world’s first ICOs, easily accepting hundreds of millions of dollars worth of newfound bitcoin and ether wealth from crypto’s nouveau riche. For those lucky enough to have had bitcoin during the ICO of XRP, buying was as easy as gambling with house money. Bitcoin and ether were rallying by so many percentage points it was hard to place the comma.
The hard part for Ripple was controlling its media presence while selling. The purpose of Ripple was obvious; its co-founding equity owners had awarded their company four-fifths of the supply of XRP. How, given this obvious largesse, could Ripple distract attention with other diversions?
Its public relations and marketing departments worked over-time. They flooded press channels with stories about peer-to-peer payments, interbank liquidity facilities, remittances, and endlessly varied distractions. It gave XRP tokens and equity away to reciprocating partners who agreed to use XRP, even if it was pointlessly inefficient.
All the while, Ripple and its co-founders steadily liquidated their XRP.
Forbes asks if XRP is round-tripping
Round-tripping refers to transactions between companies that make it look like revenue is bigger than it actually is. This accounting trick can effectively “pad the books” to make an income statement look more attractive to investors. It can also inspire confidence among participants in the digital asset industry, which had a bad 2022 after billion-dollar bankruptcies like FTX, Terra Luna, Celsius, and Voyager.
For context, the Wirecard scandal prominently featured round-tripping, along with falsification of accounts. Some $2 billion on Wirecard’s books never even existed. Wirecard routed money through related companies to make it look like it was getting more business than it actually was.
After investigators uncovered its fraud, Wirecard collapsed. The company is in insolvency proceedings.
Only 8% of Ripple’s Malaysian darling uses XRP — and most of that 8% is a related party
Ripple’s adoption in Asia is a case study in sponsored content. For years, it boasted about partnerships with Moneygram and various subsidiaries of the Japanese mega-conglomerate SBI. Eventually, the world learned that most of these so-called partnerships were financially sponsored by Ripple, with negligible non-sponsored utility of the XRP token.
Nowadays, Ripple heralds the adoption of XRP in Malaysia. Mostly, it talks about one company: Tranglo. As unearthed by Forbes, data from that Malaysian payments company indicates that only 8% of its customers are using XRP to settle payments (Ripple regularly neglected to mention this tiny percentage when praising Tranglo’s impressive scale). Forbes further reported that a related party generated most of that 8%.
Even worse, Ripple owns a 40% stake in Tranglo.
Ripple provides Tranglo with on-demand liquidity or ODL, which creates short-term loans in XRP that borrowers repay in fiat. ODL is also a scheme, providing a way for Ripple to potentially offload XRP for cash without having to take responsibility for direct sales.
Ripple disputes this take, saying the figures taken from SEC filings are being misrepresented by Forbes, and that Tranglo represents only a small part of its business.
More privately, Ripple might derive substantial revenue through offloading XRP through its ODL product under the guise of providing liquidity.
The ODL model of routing XRP through other companies with short-term loans to be repaid in cash sounds somewhat like round-tripping. In any case, it demonstrates how Ripple has been able to swap XRP for cash even if it’s not directly selling on an exchange. With examples ranging from Moneygram to various SBI portfolio companies, Ripple has a long history of subsidizing partnerships to make its business look impressive.
Although Ripple shows confidence that its legal defense can prevail against the SEC, it may be less confident in its non-sponsored, non-ODL revenue.