There’s a landgrab going on among fintechs, commercial banks, central banks, and crypto players to seize the commanding heights of Web3 – the next generation of internet-based companies and services that involve the transfer of value, not just of information.
That includes services in digital payments, stablecoins, crypto, tokenized deposits, virtual assets, and central-bank digital currencies (CBDCs). The landscape is fast-moving and confusing, but according to Ripple, the key battleground is now Asia.
Born in Silicon Valley 10 years ago, the bulk of Ripple’s approximately 800-person workforce is in San Francisco. Another roughly 100 people are in London and another 100 in Asia, primarily in Singapore. So around 75 percent of its people are still in the United States.
But volumes of flows over RippleNet, its blockchain-based global payments network, are now mostly outside the US: up to 80 percent of its $15 billion of global flows are sent and received somewhere else. More than half of volumes are in the Asia Pacific region.
Asia MD Brooks Entwistle spoke with DigFin during a visit to Hong Kong, which is back on the company’s agenda. He says the trend of business outside the US, and particularly in Asia, will continue. That’s both because of the US regulatory crackdown on all things crypto, as well as increasing opportunities elsewhere.
Tale of two Ripples
Ripple has always defined itself as essentially two halves of a related business. One is its roots as a payments fintech. It operates RippleNet, a blockchain-based wholesale payments service that utilizes a digital token called XRP as the means to facilitate payments among fiat pairs. It now has more than 70 banks and other financial institutions that use it for various currency-pair corridors. This accounts for the bulk of Ripple’s business and revenues.
At the same time, it operates RippleX, a catchall unit for more speculative plays in the broader world of crypto and digital assets. The backstory to this side of the business has bred confusion and legal troubles. Individuals associated with Ripple, the for-profit enterprise, also created the cryptocurrency XRP in 2012. They raised more than $1 billion starting in 2013 through sales of XRP tokens for cash.
Ripple the company operates the XRP Ledger (the software behind the coin) to facilitate transactions on RippleNet, but it says it has no control over XRP itself.
The creators of XRP gifted 80 million units to Ripple the company, which uses these to encourage market-maker activity to increase XRP’s liquidity, which is essential to its utility as a payments token. Today XRP is one of the biggest digital coins in the market, ranked sixth by market cap (about $24 billion, or 2.1 percent of the total crypto market), according to CoinMarketCap.
Entwistle acknowledges he spends a lot of time having to make the case that XRP is independent of Ripple the company, and that Ripple is not a crypto firm; it regards itself as an enterprise vendor for cross-border wholesale payments.
The US Securities and Exchange Commission sued Ripple in 2020, claiming XRP is a security, not a commodity, and accuses Ripple of distributing unregistered securities. In the wake of the lawsuit, major crypto exchanges such as Coinbase suspended trading in the token. The court’s ruling is expected this year, and will have a big impact on the US blockchain industry, for better or worse.
Beyond the US
But even if Ripple loses that case, the shift of its business elsewhere gives it the means to keep operating. “We’re already living in a worst-case scenario,” Entwistle said, noting the company’s growth elsewhere.
Entwistle was Uber’s head of international business before joining Ripple, and he sees some parallels between the hardline stance of the SEC and what Uber faced in other markets – notably Hong Kong. Authorities in the city, swayed by local vested interests (owners of taxi licenses), refused to discuss the notion of licensing Uber.
The result is Uber today exists in Hong Kong in a legal gray zone, and taxis are still cash-based, a situation that has become even more of an anomaly now that Hong Kong’s government is pushing the innovation agenda so loudly. Ripple might find itself in a comparable position in the US.
But in digital assets, Hong Kong has changed its tune and is pushing Web3 hard – and Ripple is keen to be involved. It is one of many parts of APAC where regulators are trying to foster a vibrant but licensed digital-asset industry.
Play for the eHKD
The latest development came this week with the Hong Kong Monetary Authority naming 16 businesses competing for the glory of creating the best use cases for a local CBDC, the e-HKD. HKMA will announce only two winners, in November during Hong Kong Fintech Week.
Ripple teamed up with Taiwan’s Fubon Bank to make its pitch. Its use case is not in the payments world, however: it’s touting e-HKD for asset tokenization of real estate, to help owners monetize their property by making it a liquid form of collateral.
“This should be relevant for any market with real estate as a primary asset and wealth-creation tool,” Entwistle said. Of course, this is just an idea. The HKMA will announce the two winners (out of 16 proposals) at the November Hong Kong Fintech Week. And then a market would have to be built, with issuers, intermediaries and investors. “Now we have to provide there’s something there.”
This follows the company also announcing it has acquired Metaco, a Switzerland-based provider of crypto custody for institutions, including the likes of Citi and BNP Paribas.
“This is our first full acquisition, and it’s not in the US,” Entwistle said.
Ripple also owns 40 percent of Tranglo, a Malaysia-based payments fintech whose shareholders include Seamless Group and TNG.
Tectonic plates and landgrabs
Entwistle makes the point that, just as Ripple’s origins were in payments but also branched into XRP, today the company regards itself as more than a blockchain payments vendor. For one thing, the company’s executives no longer talk much about comparing themselves to SWIFT – a comparison that animated Ripple in its early years.
“Our roots are in payments, but we also do liquidity solutions, custody, and tokenization,” Entwistle said.
Looking ahead, the rise of CBDCs could provide a challenge to Ripple. M-Bridge and Project Dunbar are multi-central bank pilots out of Hong Kong and Singapore, respectively. A Hong Kong-Thailand (M-Bridge) or Singapore-UAE corridor using CBDCs would render RippleNet irrelevant.
“Single-corridor CBDCs would be a real challenge for us,” Entwistle said.
But that’s only one part of the unfolding opportunity. “What about the enterprise customer doing payroll or paying suppliers in 50 markets? That’s where we come in,” he said – although Ripple has a way to go before it would offer liquidity in so many networks.
He also acknowledges that commercial banks’ blockchain-based networks (think JP Morgan’s Onyx, for example, or the recently announced Canton Network, involving two dozen financial institutions using DAML programming language) pose a commercial threat. “We have a lead, but people are chasing us, and they’re good,” he said.
“Whether it’s a CBDC, a stablecoin, or XRP, will depend on the use case,” Entwistle said. “There’s not a one-chain future.”
Also, those commercial banks are good at creating safe, permissioned spaces. But they lack the reach of a public, permissionless blockchain, such as Ethereum – or RippleNet (which is partly decentralized).
“It’s unclear how any of this settles, locally, regionally or worldwide,” Entwistle said. “But things are moving quickly. We need partners and acquisitions in many markets.”
While he had no such deals to announce, Entwistle made clear that Asia was the lynchpin to such growth, with some kind of entry strategy for Hong Kong in the makings.
