Ripple has been making waves the past month by offering on-demand liquidity to banks for transnational settlements using XRP, but not everyone’s happy. Although the new platform could significantly boost volume for the No. 3 ranked crypto with $17.8 billion in market capitalization, it has attracted plenty of criticism from the larger crypto community.
“Multi-hop gives RippleNet members the ability of transacting with banks or payment providers or digital wallets that they don’t have a direct relationship to. That’s so important because in today’s world, you need a bunch of bilateral relationships clunkily put together in a chain … to move money,” said Craig DeWitt, director of product, in an Oct. 29 company vlog.
DeWitt added that the fastest and cheapest payment options can be available to users when they go through xRapid.
Through finance-facing platforms such as RippleNet, banks can move tens of millions (or more) across borders in minutes (rather than days) in more than 40 countries. And do so at lower cost than traditional wire services. These cross-border transactions are powered by xRapid, which Ripple said in an Oct. 1 announcement eliminates the need for pre-funded accounts. (The liquidity is derived by converting XRP into sovereign fiat on global cryptocurrency exchanges.)
XRP may “grease the wheels” of a tokenizing global economy by circumventing the impediments of legacy systems. But skepticism remains because of the parties involved.
Ripple has been criticized for developing centralized tech in a blockchain industry that celebrates decentralized money. Many crypto users are inclined towards trustless coins powered by distributed nodes mainly because these do away with the very institutions whose actions led to 2008 Financial Crisis. “Why work with and trust the same institutions?” critics say, when Nakamoto-inspired innovations now make possible peer-to-peer, direct exchanges of value.
Aside from re-establishing the role of the middleman (and his fees), the skepticism stems from distrust of large institutions. Much of Ripple’s leadership team come from Corporate America (from companies such as Citibank, Google and IBM) — and this clashes with the rogue culture of early developers who want a total disruption of centralized business practices.
Traditionalists argue that tokenization of assets may be the future. But these projects need to operate within existing regulatory frameworks that govern financial institutions, which is what’s needed for mass adoption to occur.
Hallucinations of crypto-anarchism won’t fly in the real world where, from a pragmatic standpoint, the banking industry is among the most regulated of any sector, along with utilities, airlines and healthcare.
“This is where FinTech has struggled. Pure code is one thing, but it has to also be compliant and regulated,” said Ripple executive chairman Chris Larsen at last week’s Money 20/20 conference in Las Vegas. “Technology is embedded in everything these days, and people are scared. They don’t want to hear how you’re going to break things.”
Ryan Taylor, CEO of No. 12 ranked Dash, told Crypto Briefing that governments will need to eliminate regulatory uncertainty so that blockchain and cryptocurrency operators have guidance moving forward:
Right now, regulatory uncertainty is preventing a lot of businesses from jumping in to provide services or accept payments in digital currencies …. In particular, with big banks and financial institutions jumping into the space, regulators will have to start addressing these concerns in the near term, which will hopefully provide some further clarity for projects in the industry and will encourage continuous innovation and development of these technologies.
Ripple’s still facing plenty of regulatory uncertainty, but that hasn’t damaged its bottom line. Last week the company announced that it sold $163 million worth of XRP in Q3. The company also released 3 billion XRP out of escrow.
The author holds digital assets but none mentioned in this article.