Ripple (XRP): A Dive into its Working, Tokenomics, Price Factor and SEC Lawsuit

XRP, the cryptocurrency created by Ripple Labs follows a tokenomics model that emphasizes its generation, distribution and management of supply. 

The banking system today uses slow and outdated systems in order to transfer money (i.e. value) around the world. Ripple aims to create the Internet of value called RippleNet – a set of unified rules helping the financial sector use 21st century solutions for fast and scalable transfer of money.

Ripple has two main forms of transferring value – IOUs and XRP. IOUs are representation of debt and can be issued for any type of real world asset. XRP is RippleNet’s native currency which can be used to transfer money quickly around the world.

This article delves into the components of XRPs tokenomics, such, as how it’s initially allocated, the utilization of escrow accounts and its deflationary characteristics. Gaining an understanding of these factors offers insights, into how XRP operates within the Ripple ecosystem.

Knowing XRP

Prior to exploring the complexities, it’s essential  to differentiate among Ripple, XRP, and RippleNet, as these terms are frequently confused by investors. Ripple constitutes a profit-driven enterprise that owns both RippleNet and XRP.

RippleNet operates as a decentralized financial ecosystem encompassing diverse digital payment and financial service providers leveraging Ripple’s distributed ledger technology. Conversely, XRP serves as the inherent digital currency of this network, employed by entities within the ecosystem.

The primary aim of building it is to provide an alternative mechanism for transitioning transactions from databases controlled by centralized financial institutions to a more open, cost-effective, and swift infrastructure. Specifically, its focus lies in addressing the inefficiencies of cross-border transactions within the traditional financial framework, renowned for their idleness and unreasonable costs.

Commenced in 2012, XRP stands as one of the first cryptocurrencies in the field.

The procedure of validating and recording transactions on the blockchain diverges significantly. In contrast to Bitcoin, XRP does not rely on the Proof-of-Work or Proof of Stake mechanism which are two of the main methods that blockchains usually use to agree on what transactions should be verified and which one should be blocked. 

Instead ripple uses a method called a Unique Node List (UNL). Basically ripple labs sets up a list of a bunch of people that they trust and then the majority decides what gets added to the blockchain or not, they don’t use work or a staking feature but instead majority rule from their list of trusted sources.

XRP can be divided up into six decimal places and they call the smallest amount a drop which is point .000001

XRP Tokenomics: 

XRP operates with a fixed supply of 100 billion tokens, distinguishing it as a pre-mined cryptocurrency with no possibility of additional token creation. Despite this predetermined limit, the tokens were not all introduced into circulation simultaneously; rather, only a fraction is actively traded on various exchanges. Also, 20 billion tokens went to the founders.

The distribution strategy involves 55 smart contracts, each containing 1 billion XRP tokens. These contracts systematically release 1 billion tokens into the market on a monthly basis, spanning a total period of 55 months. Consequently, the circulating supply experiences a monthly increment of 1 billion tokens. At present, the circulating supply stands at approximately 53.7 billion tokens, while the remaining tokens are securely held in escrow.

A substantial portion of the total supply, exceeding 60%, is concentrated within the top 100 wallets, giving rise to concerns about the decentralization of the cryptocurrency. Additionally, the Ripple company retains ownership of 6.5 billion XRP, resulting in an adjusted circulating supply of approximately 47 billion tokens.

Adding an intriguing dimension, XRP exhibits a mild deflationary trend owing to the burning of fees. Despite the initial release of 100 billion tokens, the total supply has undergone a reduction to around 99,988,221,902 XRP, reflecting the elimination of a small fee accompanying each transaction’s completion.

XRP exhibiting a mild deflationary trend ( Is it affecting its price ? ) 

There one of the distribution strategy involves 55 smart contracts, each containing 1 billion XRP tokens. These contracts systematically release 1 billion tokens into the market on a monthly basis, spanning a total period of 55 months. Consequently, the circulating supply experiences a monthly increment of 1 billion tokens.

The first release was in December of 2017 and every single first of the month they released 1 billion tokens, it will keep on  distributed over a 55-month period and it says that the last release will be December of 2023 so that may be one factor that affects the price.

XRP Lawsuit with SEC ( U.S. Securities and Exchange Commission) 

Over the years, Ripple has faced legal battles and controversies, sparking worries within the XRP community and among potential investors.

SEC an independent agency in the United States is arguing that XRP is actually a security not a currency creating it a pretty big lawsuit because it sets precedence for future similar cryptocurrencies, the SEC says that Ripple co-founders are treating XRP as a security, kind of like a stock or a bond and if they are the regulations around, it should change now. 

Seems like the United States government is unhappy that XRP may be similar to a stock but these SEC issues are definitely unrelated to most of the centralization issues.

XRP Future: A good future or a bad future ?

XRP stands out as one of the earliest cryptocurrencies, supported by strong foundations and a committed community. The widespread adoption of RippleNet by major financial institutions underscores its popularity for transactions.

Nevertheless, recent years have seen the company grappling with legal issues that have hindered its market performance. The trajectory of XRP’s future largely hinges on the resolution of its ongoing legal dispute with the SEC.

Also you may read Algorand (ALGO): A Deep Dive into its Working and Tokenomics

XRP Tokenomics: Conclusion

Ripplе (XRP) prеsеnts a complеx and dynamic landscapе, еncompassing its tokеnomics, opеrational mеchanisms, and thе ongoing lеgal challеngеs it facеs with thе U. S. Sеcuritiеs and Exchangе Commission (SEC). Ripplе, through its nativе currеncy XRP, sееks to rеvolutionizе thе traditional banking systеm by providing a fastеr and morе scalablе altеrnativе for cross-bordеr transactions.

The tokеnomics of XRP, with its fixеd supply of 100 billion tokеns and a distribution strategy involving smart contracts, adds a layеr of intricacy to its markеt dynamics. Thе concеntration of a substantial portion of thе total supply in thе top 100 wallеts raisеs concеrns about dеcеntralization, whilе thе monthly rеlеasе of tokеns and thе dеflationary trеnd duе to fее burning contributе to thе еvolving naturе of XRP’s supply.

Thе lеgal battlе with thе SEC adds a significant layеr of uncеrtainty to XRP’s futurе. Thе argumеnt ovеr whеthеr XRP is a sеcurity, or a currеncy has far-rеaching implications, not only for Ripplе but for thе broadеr cryptocurrеncy markеt. The rеsolution of this lawsuit will undoubtеdly influence thе trajеctory of XRP, shaping its rеgulatory standing and markеt rеcеption.

Dеspitе lеgal challеngеs, XRP has a robust history as one of thе pionееring cryptocurrеnciеs, with widеsprеad adoption by major financial institutions through RipplеNеt. The commitmеnt of its community and the foundational strengths of this project position XRP for potential success. Howеvеr, thе rеsolution of thе SEC lawsuit, rеmains a pivotal factor in dеtеrmining whеthеr XRP will facе a positivе or nеgativе futurе.

In еssеncе, thе futurе of XRP is intricatеly tiеd to thе outcomе of its lеgal battlеs. A favorablе rеsolution could pavе thе way for rеnеwеd markеt confidеncе and growth, whilе an unfavorablе outcome might posе significant challеngеs for Ripplе and XRP. As thе cryptocurrеncy landscapе continuеs to еvolvе, stakеholdеrs closеly watch thе dеvеlopmеnts surrounding Ripplе, rеcognizing thе profound impact thеy may havе on thе broadеr crypto industry.

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