Overview

Ripple is a decentralized global payments network for banks, payment providers, corporates, and exchanges. Ripple utilizes their protocol software xCurrent and digital asset XRP to provide a frictionless and scalable global payment solution. Ripple touts over 100 banks and 75 customers commercially deploying their solution. xCurrent has several compelling points of differentiation which include:

● cost reductions and revenue increases

● interoperability with existing systems

● real-time global payment settlement

Additionally, Ripple’s digital asset, XRP, aims to provides additional cost savings to end users by providing on-demand liquidity for cross-border payments with increased settlement speeds, scalability and stability.

Ripple Financial Projections

$10M upfront installation fee for Ripple xCurrent with a forecasted payback period between 11–15 months. The xCurrent licensing fee per year has been approximated as “hundreds of thousands of dollars” per Ripple’s Head of Cryptography. Pugilist is unsure what that means in particular, but assumes an approximate licensing fee range between $100,000 to $500,000; depending on size and scope of bank engagement. We use a conservative metric, $200,000, for our financial projections below.

*see full report for details

XRP Network Utility Value Projections

There are three approaches to approximating the present and future network value of XRP:

1. Present Value of Future Expected Value: the percentage of the network’s future utility captured by Ripple; discounted back to the present value. Triangulated Value (TV) over five range assumptions.

*see full report for details

2. Revenue Multiplier: a revenue multiplier on the forecasted total revenue of Ripple from 2018 to 2022.

*see full report for details

XRP value given current supply outstanding (NOT including XRP held by Ripple)

*see full report for details

XRP value given current supply outstanding INCLUDING XRP held by Ripple

* see full report for details

3. Present Value of Network Multiplier: a multiplier on the percentage of the network’s future utility captured by Ripple; discounted back to the triangulated present value.

*see full report for details

Competition

SWIFT

Society for Worldwide Interbank Financial Telecommunication (SWIFT) is an international payment network that helps facilitate the secure delivery and messaging of financial data to corresponding institutions. SWIFT is the clear incumbent in the space with an established network of banks built over decades. SWIFT maintains significant relationships that cannot be discounted in a market that revolves around familiarity and stability in the solutions and partnerships. Many would argue that they lack the technical expertise to deliver on the market efficiencies businesses would like to see in cross border payments. However, this will not stop SWIFT from leveraging their large network and experimenting with new initiatives like SWIFT gpi (global payment innovation).

Permissioned Blockchains

Solutions by Hyperledger (IBM/Linux), JPMorgan, R3 Corda and the like are perhaps the most severe threat. Permissioned Blockchains move away from native digital assets, thereby removing the dependency on a specific asset or token to execute transactions. This essentially allows participants to dip their toe into the crypto waters without the unforgiving volatility that can sometimes be associated with native assets like Bitcoin. Although Ripple is a first mover in the space, banks and payment providers are keenly aware of alternatives that may arise. The one knock against permissioned blockchains may be the fact that they do not remove the need for nostro/vostro accounts which still presents FX cost pressure.

Stellar Lumens and Raiden Network

Their respective technology, business model and use cases are not a direct apples to apples comparison to Ripple, but one can see the ultimate convergence and future competition both companies can present. Ripple’s business model, team, and traction are much more developed, but from a coin value perspective, the competitors may present a more compelling investment opportunity given sentiment and coin supply outstanding is more conducive for investors and speculators alike. Also, given that both are decentralized and open source, if either protocol demonstrates a superior technology or value proposition, banks or corporations could just build their own service(s) atop these open source protocols. Thus, Stellar or RDN could use the disruptor model to eventually overcome Ripple and XRP in the long run.

Quantitative Model Rating*

Pugilist’s proprietary machine learning model generates a probability of viability that is subject to early stage investment return standards. However, given the early stage nature of these investments, the model should be viewed as directionally accurate versus a crystal ball.

Pugilist’s probability of viability is 77.35% that Ripple WILL be a viable company.

Pugilist’s probability of viability is 6.02% that XRP WILL be a viable digital asset.

Conclusion

The xCurrent software protocol offers a strong value proposition to the banking and payments landscape. Ripple is also equipped with solid management, technical team and investors. Per Ripple’s management, they are already cash flow positive which will likely only increase as they onboard more financial institutions and payment providers. Unfortunately, the investment token, XRP, has a multitude of business hurdles and risks to overcome with viable competitors at their doorstep and potential hurdles from central banks, financial institutions and governments. If Ripple can move quickly and interweave the protocol + token into the global banking systems payment operations, their network effects should be strong enough to beat out competition from permissioned blockchains and rival protocol/native assets. Overall, we believe the underlying fundamentals of Ripple the company has tremendous upside in addressing a critical pain point.

Pugilist’s Investment Rating*

Ripple (the company)

GOOD investment potential with below average risk and high reward.

XRP (the digital asset)

SPECULATIVE investment potential with high risk and reward.

Download the full report here.

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Disclaimer: Neither the author of this article, nor Pugilist Ventures, provide investment, financial, or legal advice. This site cannot substitute for professional advice and independent factual verification. The content provided on this site is for informational purposes only and should not be construed as any kind of solicitation for investment in any investment opportunity.