Ripple is a payments company that specializes in cross-border money transfers through the blockchain, a distributed database that records transactions across multiple computers. The company’s RippleNet network is used by financial institutions to send funds from one country to another. Ripple also leverages XRP, a cryptocurrency, to make cross-border payments. The XRP token, which has become commonly associated with Ripple the company, is meant to act as a kind of “bridge” currency between one fiat currency and another as those transactions flow across countries. So, say you want to send some money from the U.S. to Mexico. Ripple’s technology lets you do that by converting the U.S. dollars into XRP, transferring the XRP over to Mexico, and then converting it into Mexican pesos on the other side. By doing so, Ripple says, you don’t need to have pre-funded accounts on the other side of a cross-border transaction in order to get that money. That’s the business case for XRP from Ripple’s point of view. But XRP in its most common usage is ultimately a token that investors speculate on. And when its price dropped like a stone — like other cryptocurrencies — in the 2018 crypto bear market, regulators got concerned about the impact of these digital currencies on retail investors. In Ripple’s case, unlike bitcoin, the cryptocurrency is predominantly owned by Ripple, which holds a huge amount of XRP in an escrow account and releases tokens on a quarterly basis to a mix of institutional investors and retail investors via sales on cryptocurrency exchanges. This is a big part of how Ripple makes money. That has been a big point of contention for the SEC as it pursues its case against Ripple. Ripple, for its part, maintains that XRP shouldn’t be considered a security and is more akin to a currency or commodity. Being designated a security would mean Ripple having to file lots of paperwork and disclosures with regulators, a process that could prove costly.
Ripple CEO says SEC has lost sight of mission to protect investors
