The mechanics behind XRP’s supply have always been public. A breakdown on X from crypto commentator Crypto Tony looks at the process of XRP unlocks in particular, with the theory that the payments technology company is, in fact, diluting every holder of XRP.
The Escrow Machine and How It Works
In a detailed post on X, a crypto commentator known as Crypto Tony laid out an interesting theory as to why Ripple keeps unlocking and selling millions of XRP every month to his hundreds of thousands of followers.
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To understand the controversy, it starts with how XRP was created and distributed. When XRP launched in 2012, all 100 billion tokens were minted at once. Ripple’s founders took 20 billion for themselves and handed the remaining 80 billion to the company. For the first five years, nothing legally prevented Ripple from selling as much of that supply as it wanted.
In late 2017, the company placed 55 billion XRP into escrow accounts on the XRP Ledger. These escrows release up to 1 billion XRP every month, automatically, on a fixed schedule. This was probably meant to address concerns that Ripple could flood the market at any time.
Based on that framework, Ripple releases one billion XRP each month but relocks between 60% and 80% of the tokens, and they keep the rest, which is roughly 200 to 300 million XRP. According to Crypto Tony, the remainder is kept by Ripple and used to fund the entire company.
Ripple Is Diluting XRP Holders
A major part of the analyst’s discussion is how Ripple has been diluting the value of traders holding XRP, citing major examples as to how this is happening.
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That funding model has been acknowledged publicly. Ripple CEO Brad Garlinghouse has previously indicated in interviews that XRP sales play a role in sustaining the company.
The more uncomfortable chapter noted by Crypto Tony concerns how Ripple has, at various points, used its commercial partnerships to move XRP into the market through a secondary layer of sellers. An example is when Ripple paid MoneyGram more than $61 million in market development fees to use XRP. MoneyGram subsequently told reporters it sold XRP as soon as it received it, holding no inventory of the token.
The SEC addressed this arrangement in its complaint against Ripple, writing that MoneyGram had become a conduit for Ripple’s unregistered XRP sales.
According to Crypto Tony, every holder of XRP is being slowly diluted by the company itself, by design, on a monthly schedule that’s written into the blockchain. This is a major reason as to why XRP is now down six consecutive months.
Crypto Tony also mentioned Jed McCaleb, co-founder of Ripple, as another conduit through which the holdings of XRP holders were diluted. McCaleb left the company with 9 billion XRP and spent 8 years dumping about $3.2 billion worth of his holdings.
At the time of writing, Ripple still has about 33.355 billion XRP in its escrow wallets, according to data from XRPScan.
Featured image from Pxfuel, chart from Tradingview.com