Ripple claims that banks will use its technology to perform fast cross-border transfers. When that comes, they will need to buy XRP coins, and that’s why XRP coins are valuable. In reality, Ripple doesn’t stand a chance, and it must know it. It’s argument that XRP coins are worth anything at all, is a flat-out lie.

In 2018 alone, Ripple Labs sold over $500 millions’ worth of XRP coins, mostly to unsophisticated investors. Ripple’s only argument for why XRP coins are worth anything at all, is that banks have to buy them if they want to transact using Ripple’s technology:

The point of XRP, at least as far as Ripple’s use case is concerned, is to settle institutional payments using an open digital asset with liquidity that anyone can contribute to and draw off of. It’s to put banks on the same playing field as non-banks. — David Schwartz (@JoelKatz) September 3, 2018

Ripple claims that banks are quickly adopting its technology, and that it is on pace of competing with SWIFT for a share of the global cross-border transactions market. As a result, XRP coins’ market capitalisation should supposedly rise to a sizeable fraction of the $5 trillions the nostro / vostro system currently requires.

The origin story

The first time Ripple Labs mentioned the nostro / vostro use case for XRP, was in a letter to the HM Treasury, dated 3 December 2014. It was one in a list of five use cases for XRP, where “Small and Mid-Sized Banks can benefit by having direct access to international payments without tying up large amounts of capital.”

Ripple went on to explore this use case by pitching its idea to banks over the course of 2015. It was floating the idea of a system where market makers…

“would credit their accounts in one country and debit them where the cash is to be transferred to, with Ripple’s distributed ledger recording the transfer of money between different countries.” Dilip Dao, Ripple Labs Asia Pacific CEO, 2015

Ripple also went to see SWIFT, the company with a monopoly on interbank messaging, to try and see what they thought of their technology. SWIFT tested Ripple’s technology back in 2015, and were unimpressed:

“You still need business rules on top of that and you still need the payment information anyway. That’s not in a distributed ledger technology, at least not today.” Wim Raymaekers, global head of banking markets at Swift, 2015

Ripple’s idea was dead in the water

At the time, SWIFT was already working on its own solution to improve on cross-border settlements, and accepted to run a test with Ripple to see if there was something there. They didn’t think it could be used for settlements or payments. The biggest bottleneck in inter-bank transfers is the need to comply with KYC and AML requirements.

“[Blockchain is] a great technology but you still must know who you are transacting with. So there must be identity, there must be some kind of organisation around this.” Wim Raymaekers, global head of banking markets at Swift, 2015

SWIFT’s solution was already solving for KYC & AML, with a global registry of banks that were using SWIFT. At the time when Ripple was just trying to figure out what cross-border settlements were all about, SWIFT was already lightyears ahead:

“We now have over 1,000 banks. It’s aimed at correspondent banking. It’s ‘know your correspondent bank’ rather than ‘know your customer.'” Gottfried Leibbrandt, chief executive of the Belgium-based SWIFT, 2015

Ripple chose to double-down on its bluff

In 2016, McKinsey published a report about the state of global payments, which outlined the efforts that banks were making in order to bring down transaction costs. If you did a little bit of research about Ripple, you must have come across that report, because Ripple links to it from its “Liquidity Explained” page:

Ripple’s claim about $5 trillion being held up in nostro / vostro accounts

This report is the cornerstone of Ripple’s business plan. Ripple references the report as the source for saying that $5 trillion are currently trapped in nostro / vostro accounts, and that Ripple’s technology will free up all this capital, replacing it with XRP coins.

Without this argument, there’s no way Ripple could make a case for why people should buy the XRP coins it has given itself, and is currently selling to unsophisticated investors. Ripple Labs’ would lose its sole source of revenue, and the hundreds of millions of dollars that come from it.

The problem is, the McKinsey report Ripple links to, doesn’t say anything like what Ripple pretends it does. It doesn’t even put a number on the amount of capital supposedly trapped in nostro / vostro accounts. On the contrary, the report projects that efforts being done by banks will bring the average cost of a cross-border transaction down to $1-2, effectively destroying Ripple’s whole argument for why banks should need its technology at all:

Projected average cost of cross-border transactions, source: McKinsey

SWIFT gpi is beating Ripple to a pulp

Ripple keeps claiming that it will disrupt SWIFT, but SWIFT is already disrupting itself, leaving Ripple in the dust. As I’m writing this, by Ripple’s own account, its ledger was used to transfer $10 million over the last 24 hours:

XRP ledger volume, source: ripple.com

SWIFT’s own solution – SWIFT gpi, the one they already had been working on for years when Ripple came along, is currently doing $300 billion transactions per day, with over 400 financial institutions actively using it.

Anyone with a modicum of understanding of international banking already knew back in 2016 that Ripple didn’t stand a chance to disrupt anything. SWIFT’s Wim Raymakers was already pointing out that Ripple’s amateurish partnerships with banks were worthless, and a joke:

“The gpi is different from some proof of concepts out there. You know, where they (Ripple) say we sent a payment in 3.5 seconds from bank A to bank B; that is typically a demo; there are no real bank back-office systems behind it.” “So here we took the complete opposite approach. Banks are actually coding this gpi into their systems; they are automating the gpi flows. That’s what they are testing now in pilot on their production systems.” Wim Raymaekers, SWIFT’s global head of the banking market, 2016



Ripple is defrauding XRP investors

Ripple was never even close to being adopted by banks for its supposed merits, because it has none. The real problem that needed to be solved in cross-border transactions was KYC & AML, not writing numbers in a database. It’s a much more complicated problem, which SWIFT was already working hard at solving. Ripple didn’t even try to compete with SWIFT. Instead, it simply put out empty press releases about how distributed ledger technology will solve everything, and hopped onto the blockchain train, at the expense of XRP investors.

Ripple’s continuous press releases about how its technology is supposedly being adopted by financial institutions, have but one goal: to induce unsophisticated investors into buying the XRP coins it’s continuously selling.