John Hyatt, Senior Wealth Reporter at Forbes, published an investigative report on Ripple’s business practices, and the company is not very good at all. In particular, it is about XRP purchases and sales and how Ripple allegedly whitewashes its numbers to sell its core business.
Cross-border payments with and without XRP are known to be Ripple’s core business, with only one line of business that is really profitable, the one with XRP, according to Hyatt. For this reason, the company wants good marketing that sells the fast-growing XRP-based payment technology On-Demand Liquidity (ODL).
However, the Forbes journalist raised questions about whether cross-border payments using XRP are actually developing as the company is advertising outside. “But new filings from the company’s crypto partner Tranglo suggest that customer adoption is slowing. So why is XRP selling so fast? wrote the investigative journalist.
These are the Allegations Against Ripple
The report focuses on Malaysian payments company Tranglo, which Hyatt says has become central to Ripple’s story. “Tranglo becomes a key element in Ripple’s flagship offering, On-Demand Liquidity, a short-term credit product.”
In March 2021, about three months after the SEC sued the company, Ripple bought a 40% stake in the company for an undisclosed amount. After a one-year pilot at ODL, Tranglo rolled out XRP-based technology to all its customers.
However, the company’s financial records show that only 8 out of 91 remittance customers are using XRP. The most explosive is that a related special purpose entity GEA Ltd. accounts for most of the business.
It is an affiliate of the Cayman Islands-based Seamless Group. The major shareholder of Tranglo and Seamless is Alex Kong, a businessman based in Singapore. He is also the CEO of TNG Asia – also a subsidiary of Seamless – which offers the TNG Wallet, popular in Hong Kong with 500,000 downloads, and which is believed to be a major ODL user for Tranglo.
For the company, the partnership with the blockchain company is very profitable. The aforementioned companies accounted for 6.2% of Tranglo’s revenue of $44.7 million in the first three quarters of 2022, according to Hyatt. GEA generated $1.327 million in revenue for Tranglo in the first six months of 2022. Annualized, that’s 73% of XRP-driven revenue.
The reporter thus implies that Tranglo may have a financial interest in artificially inflating the amount of XRP through ODL. Along these lines, Hyatt also pointed out that there are no limits on the amount of XRP that Ripple can sell through Tranglo’s ODL facility, regardless of Tranglo’s demand for XRP. Therefore, the main accusation is:
This raises the issue of whether Ripple is a money transfer business that uses XRP to support its key ODL product or whether the company is simply using ODL to help it sell its stash of XRP.
Doubts About Intentions
Hyatt also emphasized in the article that ODL has been the key to success because customers need to buy XRP from the company. In 2021 and 2022, Ripple will earn $2.7 billion in revenue from “ODL-related sales” of XRP. On the contrary, anonymous sources told Forbes that the software business (including RippleNet) is unlikely to be profitable.
Martin Walker, a longtime XRP skeptic and director of banking and finance at the Center for Evidence-Based Management also had his say on the report, saying:
Ripple continues to make great efforts to promote the story that they are improving remittances and cross-border payments but every time information about the truth comes out, it is all about selling XRP. That’s the gist of the story.
Interestingly, Forbes has reached out to Ripple Labs for comments on the report’s primary findings. However, CEO Brad Garlinghouse’s company only commented that “some” of the numbers from the SEC filings were inaccurate and stressed that Tranglo was only a small part of its business. However, Hyatt’s conclusion is:
It doesn’t matter for Ripple if XRP becomes the elixir of cross-border payments. With dedicated partners like Tranglo, Ripple’s apparent core business–selling more XRP than it buys–can do just fine.
At press time, the XRP price was trading at $0.4981.
Featured image from iStock, chart from TradingView.com