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Chris_Reeves

Why isn't Ripple a Market Maker?

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With Ripple owning such a vast amount of XRP, why wouldn't they consider taking steps to either purchase or become a market maker designed specifically to support XRP liquidity and add it as a part of their xRapid/xVia product suite? This could eliminate the concerns regarding liquidity and would allow them to generate fee based income as a market maker? Has anyone ever considered this?

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7 minutes ago, aavkk said:

I hope others with far more knowledge than myself will chime in on this but I believe there is a lot of speculation around XPool serving this function.  

I'd tend to agree but Brad himself said that he hadn't ever heard of xPool, so if that is to be the case, it's far in the future. Ripple's current focus is xRapid production and xPring but who knows, right? 

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I think the decentralization perception comes into play with this one. The FUD is bad enough already claiming Ripple can still flood the market with XRP even though its escrowed. If they were to become the market maker owning as much as they do they would have to walk a virtually impossible line to avoid the manipulator label of the XRP market. Rather than market maker, i think it would be interesting to see them explore starting a banking subsidiary that shows how its possible to bank with digital assets (get rid of Nostros, make digital asset loans, show how wires can be settled in seconds rather than hours, use the XRP market makers if need be, custody, etc). Maybe go the startup route funded by a cash grant off the Ripple balance sheet and VC money so the Ripple supply of XRP can stay in escrow and Ripple is somewhat arms length other than building the ecosysytem...just some fantasies though!!  

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36 minutes ago, Chris_Reeves said:

With Ripple owning such a vast amount of XRP, why wouldn't they consider taking steps to either purchase or become a market maker designed specifically to support XRP liquidity and add it as a part of their xRapid/xVia product suite? This could eliminate the concerns regarding liquidity and would allow them to generate fee based income as a market maker? Has anyone ever considered this?

I second this question. Or, why isn't Ripple the central bank of planet Earth?

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40 minutes ago, Chris_Reeves said:

With Ripple owning such a vast amount of XRP, why wouldn't they consider taking steps to either purchase or become a market maker designed specifically to support XRP liquidity and add it as a part of their xRapid/xVia product suite? This could eliminate the concerns regarding liquidity and would allow them to generate fee based income as a market maker? Has anyone ever considered this?

Because the got in trouble for it before and do not want to enter that realm again.

http://www.businessinsider.com/ripple-just-got-slapped-with-a-700000-fine-2015-5

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7 minutes ago, IAmATroll said:

Because the got in trouble for it before and do not want to enter that realm again.

http://www.businessinsider.com/ripple-just-got-slapped-with-a-700000-fine-2015-5

Part of the requirement was to register another company XRP II, LLC which presumably could engage in this type of transaction now that is has been approved by FinCEN?

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As others have remarked, it's better in terms of PR and if not also regulation that others take up the effort.  Market-making also isn't easy, and is not without considerable risk - most I know who've tried it have failed over a long enough term.  Ripple would have to jump through quite a few hoops to get it up and running, and expend resources to keep it up and running and profitable (if they can...). Others may be better positioned in this regard but lack the XRP resources to do it on a larger scale, and to that end Ripple is certainly welcoming and will assist anyone wishing to do it.  Eg, if they approach Ripple with a convincing model, AFAIK Ripple will consider loaning XRP for the purpose of kickstarting a new MM effort.

Also, bear in mind that many who've consistently succeeded in traditional markets (institutions and the like), are also usually cheating and pulling every unethical advantage they can, usually on micro-second timeframes.  This is obviously much harder to do on a public ledger with a 3.5 second ledger close.

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39 minutes ago, Chris_Reeves said:

I'd tend to agree but Brad himself said that he hadn't ever heard of xPool, so if that is to be the case, it's far in the future. Ripple's current focus is xRapid production and xPring but who knows, right? 

Do you have a link to him actually saying he never heard of xPool?

I only saw it in someone's comment which was supposedly coming from what I believe was a made up interview with Brad evidence of which taking place was never presented anywhere.

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8 minutes ago, Chris_Reeves said:

Part of the requirement was to register another company XRP II, LLC which presumably could engage in this type of transaction now that is has been approved by FinCEN?

They are, but we don't know to what extent. 

https://www.reddit.com/r/Ripple/comments/7gohbn/im_beginning_to_believe_that_ripples_publicity/dqo9t5g/

Quote

Because of the firewall between us and the companies that execute the trades, I don't know the details of their trading algorithm. I do know that it places trades on both sides of the order book with a net bias towards XRP sales totalling roughly 20 basis points (0.2%) of total volume. They understand that we want to protect the long term value of our XRP and they are expert market makers.

Probably keeping it low. Ripple is trying to kickstart an ecosystem, not play every part of it themselves. 

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Posted (edited)
1 hour ago, Chris_Reeves said:

With Ripple owning such a vast amount of XRP, why wouldn't they consider taking steps to either purchase or become a market maker designed specifically to support XRP liquidity and add it as a part of their xRapid/xVia product suite? This could eliminate the concerns regarding liquidity and would allow them to generate fee based income as a market maker? Has anyone ever considered this?

I believe Ripple got in trouble for selling their currency directly to folks and were fined a number of years ago. Now they no longer sell directly to markets. This would basically make them a non player in the market maker arena.

Edited by Raz

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26 minutes ago, Professor Hantzen said:

Others may be better positioned in this regard but lack the XRP resources to do it on a larger scale, and to that end Ripple is certainly welcoming and will assist anyone wishing to do it.  Eg, if they approach Ripple with a convincing model, AFAIK Ripple will consider loaning XRP for the purpose of kickstarting a new MM effort.
 

And they actually do that. They are currently lendingn XRP to market makers to get them started / cover the first risk:

https://ripple.com/insights/q1-2018-xrp-markets-report/

XRP’s volume was also driven by the extension of more than $16 million in new XRP loans from XRP II, LLC to market makers. A significant pain point for digital asset liquidity providers is the need to purchase or borrow assets in order to provide both bids and offers. Now, with the ability to secure cost-effective, capital-efficient XRP loans, market makers are less challenged to get involved in XRP markets. The added flexibility also allows liquidity providers to tighten spreads as their margins aren’t hampered by the high costs of sourcing inventory or by the risk of holding significant amounts of inventory.

 

and David Schwartz also just hinted at usage of XRP as a medium for that (!), around 7:25

Smart combination if you ask me!

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17 minutes ago, Raz said:

I believe Ripple got in trouble for selling their currency directly to folks and were fined a number of years ago. Now they no longer sell directly to markets. This would basically make them a non player in the market maker arena.

They do sell directly, on well-known exchanges.  The amount they sell on-exchange is published in the XRP Markets Quarterly Report. For example, in the most recent report (referring to XRP II, LLC) :

"Additionally, the company sold $151.1 million worth of XRP programmatically, as a small percentage of overall exchange volume. These sales represented 0.095 percent (9.5 basis points) of the $160.0 billion traded globally in XRP in Q1."

Elsewhere, David Schwartz has stated that these programmatic sales are both buys and sells that result in a net sale, which - despite what I said earlier - could indicate they are engaging in MMing themselves directly. But, it could also indicate arbitrage (which is effectively the opposite of MMing), or it could be just about anything else.  So assuming its market-making given the limited information I've seen is a bit of a crapshoot. It's also reasonable to assume they don't want to specify exactly what they're doing, as in general, specifying ones automated trading strategy is a bad idea as others can use any knowledge to gamify against your strategy.

Personally, I don't believe they are actively engaged in MMing, but this is based mainly on personal experience.  I guess it is possible they could have made new hires and started something up, but I think its more likely they have just built something much simpler based on volume & volatility metrics that is intended to sell large quantities with minimal market disruption.

Esseentially, as soon as you try to beat the market and squeeze certain profit out of it, its a race to the bottom and a pain in the ass.  I just don't think its their style or interest, based on my knowledge of them - but I could be wrong, or it could have changed over time.

1 minute ago, Amigo said:

And they actually do that. They are currently lendingn XRP to market makers to get them started / cover the first risk:

Indeed! And it's a great strategy, as it's much, much easier for someone to take a punt on it if they don't have to front all the capital (and if they mess up, can just pull the plug at whatever % loss they are comfortable with).  And whether they win or lose, XRP enjoys tighter spreads and greater liquidity for the duration any of them operate, making it a no-lose proposition for Ripple.  Personally, I think they could go further to really ramp things up, and just take a hit on the loans - eg, take a reasonable negative interest on them but with a guarantee on volume, and if someone slowly bleeds it all away, well they basically just bought the liquidity for the duration and at a calculable, predictable level.

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7 minutes ago, Professor Hantzen said:

They do sell directly, on well-known exchanges.  The amount they sell on-exchange is published in the XRP Markets Quarterly Report. For example, in the most recent report (referring to XRP II, LLC) :

"Additionally, the company sold $151.1 million worth of XRP programmatically, as a small percentage of overall exchange volume. These sales represented 0.095 percent (9.5 basis points) of the $160.0 billion traded globally in XRP in Q1."

Elsewhere, David Schwartz has stated that these programmatic sales are both buys and sells that result in a net sale, which - despite what I said earlier - could indicate they are engaging in MMing themselves directly. But, it could also indicate arbitrage (which is effectively the opposite of MMing), or it could be just about anything else.  So assuming its market-making given the limited information I've seen is a bit of a crapshoot. It's also reasonable to assume they don't want to specify exactly what they're doing, as in general, specifying ones automated trading strategy is a bad idea as others can use any knowledge to gamify against your strategy.

Personally, I don't believe they are actively engaged in MMing, but this is based mainly on personal experience.  I guess it is possible they could have made new hires and started something up, but I think its more likely they have just built something much simpler based on volume & volatility metrics that is intended to sell large quantities with minimal market disruption.

Esseentially, as soon as you try to beat the market and squeeze certain profit out of it, its a race to the bottom and a pain in the ass.  I just don't think its their style or interest, based on my knowledge of them - but I could be wrong, or it could have changed over time.

Indeed! And it's a great strategy, as it's much, much easier for someone to take a punt on it if they don't have to front all the capital (and if they mess up, can just pull the plug at whatever % loss they are comfortable with).  And whether they win or lose, XRP enjoys tighter spreads and greater liquidity for the duration any of them operate, making it a no-lose proposition for Ripple.  Personally, I think they could go further to really ramp things up, and just take a hit on the loans - eg, take a reasonable negative interest on them but with a guarantee on volume, and if someone slowly bleeds it all away, well they basically just bought the liquidity for the duration and at a calculable, predictable level.

I’m confused. This article explains https://www.sovereignman.com/finance/it-begins-us-government-issues-700000-fine-against-a-digital-currency-16907/ all of the legal issues if they sold directly to someone. Perhaps I misunderstood and the exchanges handle all the red tape so Ripple can sell?

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