Ripple: A Sophisticated Experiment in High-End Financial Populism

Author: YettaS

Yesterday, the President's words once again propelled $XRP, briefly surpassing $ETH to become the second in FDV. Although it has long been famous, few people know what it actually does. Is Ripple a massive scam? If not, then why do we hardly see its real users in our daily lives? What is the scale of Ripple's business, and is it sufficient to support its current value? If not, what does it rely on?

This article will help you dissect Ripple's business logic, confront its challenges and controversies, from its cross-border payment innovations to the core role of XRP as a bridge, helping us to deeply understand how to turn "populism" into a feast of capital and technology in this industry.

What kind of business is Ripple?

Ripple is in the cross-border payment business. The traditional cross-border payment process is divided into information flow and capital flow. On the information flow level, SWIFT standardizes the requirements of various receiving countries; on the capital flow level, the initiating bank and the receiving bank complete the clearing and settlement. If there is no direct relationship between the two, funds need to be transferred through corresponding banks or central banks, and most fund transfers require multiple intermediary banks. This leads to issues such as: 1. Long processing times, 2. High costs, 3. Low transparency.

Crypto is very suitable for solving the transfer and settlement of funds.

First, let's talk about the solution under stablecoins: local OTC/payment companies receive foreign exchange, which they convert into USD at banks. The USD needs to be exchanged for USDT through OTCs like Cumberland, and then the transfer is completed on-chain using USDT. At the receiving end, USDT must again be converted to USD through OTC, and then exchanged for local currency through banks. In this solution, the transfer and settlement of USDT become very simple, but the difficulty and moat lie in the entire OTC network. If using USDC, the process is a bit more convenient because it can be done directly at compliant venues with Circle.

The following diagram illustrates the process with one end as USDT and the other as USDC. In fact, the red box in the diagram below is the key to the entire stablecoin cross-border payment, which is that there are always OTCs available to provide USDT deposits and withdrawals. They occupy a significant amount of funds, making this the "most costly" part of cross-border payments, and thus the area where Tether has the strongest moat. This is exactly what I mentioned in "Consensus in the Gap: Tether and the New Global Financial Order": various channels and exchange platforms have become Tether's workers helping it expand its network globally.

Ripple actually offers a simpler solution than stablecoins. Its process involves converting foreign currency into XRP through local banks or payment institutions, sending XRP to the receiving country's CEX, and then converting XRP into local currency. The following diagram takes Brazil to Thailand as an example, with the currency link being BRL -> XRP -> BHT. In other words, Ripple has recreated a foreign exchange market using XRP as a bridge currency.

Ripple provides a very clever and efficient cross-border payment solution. In traditional SWIFT or stablecoin cross-border payment scenarios, the occupation of funds has always been a pain point. Each time a currency exchange occurs, banks or OTCs usually need to pre-fund sufficient amounts into accounts to ensure the smooth completion of the entire payment process. For example, in the stablecoin solution, banks need to have enough USD for currency exchange, and OTC merchants need to pre-stock USDT. This pre-funding is not only cumbersome but also significantly reduces the efficiency of fund usage. However, Ripple's advantage lies in its clever use of the liquidity mechanism of CEX, avoiding the pain point of cash pre-positioning. By directly exchanging assets on CEX, this is what it proposes as On-Demand Liquidity.

What is the key to recreating this foreign exchange market?

Ripple is not just running an ordinary business; it is more like promoting a whole new model of cross-border remittance. From a compliance perspective, the policy environment and transaction models that can be adopted vary across regions, and Ripple, through its own efforts, attempts to single-handedly drive this new market transformation.

There are two key elements in Ripple's development path:

1. Bank BD: Making banks willing to use XRP for this cross-border payment solution.

2. CEX market depth: Ensuring that the XRP trading markets in various regions have sufficient liquidity to support global currency exchanges.

To this end, Ripple has not been idle.

First, regarding the first point. Before 2017, Ripple did not directly engage in many currency-related businesses. Its initial goal was to replace SWIFT, leveraging its advantages in the information layer to collaborate with numerous banks and promote market education. Through this approach, Ripple gradually made major banks in various regions its strategic partners. For example, in September 2016, SBI (Strategic Business Innovator) acquired 10.5% of Ripple for $55 million. In the same year, Ripple also received investment from SCB (Siam Commercial Bank). By 2017, Cuallix became the first financial institution to attempt to promote XRP as a bridge currency, and with the pandemic, the business using XRP as a bridge currency began to expand significantly.

This also explains why it is difficult to find real use cases for Ripple, as Ripple's cross-border payment solutions are not directly exposed to ordinary users or merchants. It mainly operates through bank channels, and merchants or recipients do not need to know the pathways behind the bank remittances. In fact, as long as banks are willing to allocate even a small portion of their business to Ripple, it is enough to support the entire business model.

Now, regarding the second point. Ripple must establish a global CEX network to ensure the trading depth of XRP, allowing for 24/7 trading, minimal slippage, and smooth deposits and withdrawals. On this front, Ripple has also put in considerable effort. For instance, in 2019, Ripple invested in Mexico's first CEX, Bitso, and gradually expanded its market influence to Brazil and Argentina. Meanwhile, the mainstream exchange in the Philippines, Coins.ph, became an authorized partner of Ripple, serving as its preferred CEX for XRP payments, further enhancing Ripple's market penetration.

Ripple is indeed a highly BD-driven business. A casual look at LinkedIn reveals that Ripple has a large number of BD and marketing teams, all with high-end backgrounds in consulting and investment banking, which is not something an average person can sustain.

How is Ripple performing in this business?

In 2023, the global cross-border payment volume is approximately 190 trillion. In comparison, Ripple's cross-border transaction volume to date is about 35 million transactions, with a transaction value of approximately $70 billion, which is quite small compared to the global cross-border payment volume.

I interviewed a local OTC merchant in Latin America, and their annual cross-border transaction volume is about $1 to $1.5 billion, and this is just one ordinary OTC desk. In this light, Ripple's transaction scale is also insignificant compared to the market influence of stablecoin payments.

According to industry norms, cross-border payment fees typically range from 1% to 2%. Based on this, if Ripple relies solely on cross-border payment business income to profit, it is clearly a drop in the bucket.

Moreover, in the early days, Ripple had to provide substantial subsidies to encourage banks and payment companies to use its solutions. For example, in one quarter of 2020, Ripple paid $15 million in subsidies to the then-second-largest remittance company, MoneyGram, incentivizing them to use the Ripple network.

What is Ripple's next step—expanding custody and stablecoins?

Unlike Tether, which directly leverages the global liquidity of the dollar to promote the expansion of dollar hegemony, Ripple's ecosystem relies entirely on building its own network and forming alliances to maintain its operations, making the bottleneck of this payment business quite evident. Therefore, Ripple must also consider how to break through this bottleneck. Leveraging its advantages with enterprise clients, Ripple has chosen three business lines for expansion—Payment, Custody, and Stablecoin.

In May 2023, Ripple acquired the Swiss custody provider Metaco for $250 million.

In June 2024, Ripple acquired Standard Custody, which holds nearly 40 currency payment-related licenses in the U.S., a Major Payment Institution license (MPI) from the Monetary Authority of Singapore (MAS), and VASP (Virtual Asset Service Provider) registration from the Central Bank of Ireland. Its CEO, Jack McDonald, also serves as Ripple's Senior Vice President of Stablecoins, effectively paving the way for Ripple to issue stablecoins.

In December 2024, Ripple officially issued the RLUSD stablecoin and received approval from the New York Department of Financial Services (NYDFS).

At this point, Ripple can be viewed as a normal Fintech company, with its three business lines clearly delineated.

How has Crypto helped Ripple?

If making money from the business itself is not substantial, then what does Ripple rely on for profit? The answer is simple: selling coins.

Ripple's protracted litigation with the SEC arose from its coin sales. The SEC accused Ripple of selling over $1.3 billion worth of XRP to 1,278 institutions to finance the company. The SEC believes XRP is an unregistered security, which violates federal securities laws, and demands Ripple pay up to $2 billion in fines. Ultimately, in August 2023, the court ruled that Ripple only needs to pay approximately $125 million, but the judge also mentioned that its "On-Demand Liquidity" service might be overstepping.

How can Ripple sell so many coins?

As mentioned earlier, On-Demand Liquidity (ODL) is the core of Ripple's cross-border payment solution. As long as the liquidity of XRP is ensured, parties do not need pre-funding, and currency exchange can be achieved through XRP. It is precisely because of this that ODL provides Ripple with continuous liquidity support for monetization, as Ripple itself is the largest holder of XRP. Moreover, as a bridge currency for cross-border payments, XRP should clearly be defined as a currency rather than a security.

On-Demand Liquidity is actually a very clever three-in-one solution in Ripple's business.

Ripple tightly binds business demand with the circulation of XRP. The liquidity of XRP in business scenarios not only provides a foundation for Ripple's narrative but also makes its operations in the capital market more adept.

A high-end financial populism experiment

Ripple's business model has gradually shifted from product-driven to capital operation, evolving into a "market consensus-driven" profit model. This is why we jokingly refer to Ripple as a blue-chip meme, only fluctuating with favorable policies.

In my view, Ripple's business logic is a clever "financial populism experiment." By packaging the pain points of cross-border payments, it attracts the participation of mainstream financial institutions while leveraging the cognitive biases of Crypto retail to amplify the strategic significance of its business. This has allowed Ripple's commercial operations to deviate from the simple "business-driven profit" path of traditional Fintech companies, entering a high-risk, high-reward realm that relies more on "market narrative" and "capital logic."

We cannot know the original intentions of the project team—whether it was to use capital operations to obtain initial funding to promote industry progress or to leverage a product of certain value to play a game of capital arbitrage. However, it is undeniable that Ripple has a remarkable grasp of financial populism.

In the financial market, value creation and value recognition are often not entirely equivalent, especially in the highly speculative environment of Crypto, where "market consensus" itself can constitute a business model. Ripple is precisely a typical case of this model. It neither relies entirely on product growth to drive revenue like traditional Fintech nor solely on liquidity bubbles like pure Crypto speculative projects. Instead, it skillfully navigates between compliant financial systems, shaping credibility through institutional endorsements while amplifying its narrative through policies and market sentiment.

Is Ripple creating value or manufacturing belief? The core of high-end financial populism often lies in this ambiguous boundary.