Sirwin
Sirwin

Is the game over for the banker's coin? Part 2

By paragism | paragism | 23 Dec 2020


[This is the second part of the article. Here you can find the first part of the article.]

Before Bitcoin, we needed a trusted third party to keep an account of money transfer from one point to another point. Your bank, VISA or MasterCard are the examples of such trusted third parties. If Alice sends money to Bob, the trusted third-party debits Alice’s account, credits Bob’s account and updates the ledger for both. Blockchain helps to conduct the whole process in a trustless manner while keeping the ledger open for public view. Bitcoin has store-of-value but the transactions are slow. This is the reason when Ripple came up with the idea of using XRP as a bridge between fiat currencies during remittance, an abnormal buzz was created. FOMO drove the price to its craziest peak in 2017. Abnormal price prediction of XRP reaching $1000 was flooding the market back then. Banks didn’t use XRP and they won’t use it ever likely. People earlier used XRP to move funds from one exchange to another due to its low withdrawal fee but now the stablecoins have changed the game. Many exchanges offer withdrawal of BEP2, TRC20 based stablecoins with zero or a nominal fee. What is the use case of XRP now?

Rise of DeFi throws a challenge to XRP

DeFi or decentralized finance was an unknown term a few years back. Being your own bank and performing lending/borrowing activity without the intervention of a third party or a middle man caught the attention of people. DeFi activity is mainly happening on Ethereum although some other blockchains are trying to catch up. Total value locked in DeFi is $16.53 billion and the figure is growing exponentially (2298% growth in one year). A decentralized AMM (Automated Market Making) based exchange like Uniswap is competing with top centralized exchanges nowadays. Tokenization of different assets is happening at lightning speed on Ethereum. Ethereum wrapped Bitcoin (WBTC) is the number one DeFi asset now. People want to be their own bank and want permissionless trading. DeFi is a challenge to XRP’s purpose of existence.

 

The exponential growth of DeFi TVL – from defipulse

The pump is becoming difficult

XRP ledger relies upon consensus. It has no POW or POS. In a POW or POS network, all participants get rewards. As XRP is non-participatory in nature, the network participants get no incentive. There is no incentive for anyone other than Ripple, who controls the network, to make a reliable system. 55 billion XRP was moved to escrow in 2017 and the action came with a promise to not flood the market. Their blog post said, “We use Escrow to establish 55 contracts of 1 billion XRP each that will expire on the first day of every month from months 0 to 54. As each contract expires, the XRP will become available for Ripple’s use.” Ripple had to dump XRP into the exchanges on a monthly basis as there were not any institutional buyers. As per this Cointelegraph article, “prior to the scheme beginning, Ripple was selling around $300 million in XRP each month. However, in 2019, sell-offs noticeably intensified, with Ripple disposing of more tokens last year than any other.” The escrow failed to control a dramatic price decrease of XRP against both BTC and USD. Ripple obviously buys XRP from the market to pump it sometimes but to do that they need to use the fund received from previous XRP sales only. XRP pump is generally followed by a dump as Ripple again books the gains by selling XRP in the same market. It's difficult to pump XRP organically as bank partnership news doesn’t excite the market anymore. 

 

So, let’s bring XRP to DeFi

The recent price pump of XRP happened due to Flare Network ‘Spark’ token airdrop. Flare claims to combine the best of XRP, Ethereum and Avalanche and it is a utility fork of XRP. The airdrop snapshot happened on 12th December 2020. Flare integrates Ethereum Virtual Machine. It is different from XRP ledger but there is a relationship between the two ledgers. Flare will help smart contract execution on Ethereum blockchain using XRP via FXRP. The native token of Flare is Spark and it’ll be used as collateral for FXRP. Trustless issuance of assets from a non-turing complete chain will be enabled by this gateway. XRP will get entry into DeFi. It is really not clear whether Flare is backed by Ripple or not but a completely centralized cryptocurrency designed to be used by the banks will be served on anti-bank DeFi platform. The XRP community is a bit excited with news.

“If you invade country A, you conquer country A, if you invade country B, you conquer country B, but if you invade both at the same time sending half your soldiers to each one, the power of the two combined will crush you.” – Vitalik Buterin

Compromise vs. purity has an age-old trade-off. Once you believe in one path, you should stick to it. The abnormal deviation is a disaster. XRP going to DeFi is similar to shifting from anarcho-capitalism to soviet communism. A system can be fundamentally centralized or decentralized. There is no possibility of a halfway scheme. XRP was the worst-performing major cryptocurrency of 2019 and it was knocked out of top three positions as per market cap. The coin is not dead obviously. The recent pump has reaffirmed its position as a top-three cryptocurrency. It is a fact that Ripple can’t be cash-flow positive without dumping XRP from its escrow as it is the only way to finance their business and the vibe must be kept alive so that they can dump XRP. More fun now! The recent declaration by Ripple says that it’ll be sued by the SEC over the alleged sale of unlicensed securities. This new development has resumed the old debate on whether XRP is a security or a currency. The future of the banker’s coin seems to be terribly bleak. 


The images (if not cited) are created from free vectors by the author. This post was first published here for Cryptowriter in association with voice.com.

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paragism
paragism

Cypherpunk. Writing content which I love. Creeping on the blockchain. Twitter - @paragism_


paragism
paragism

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