How do financial institutions receive XRP for usage?

[xh3b4sd]

Hello folks, 

 

while having an argument with somebody recently I wondered how financial institutions receive their stash of XRP. I also wondered how the process of releasing XRPs into the market works on a technical level. Like, the concept of it. Lets get this straight for the purpose of knowledge sharing and how to counter FUD when having an argument. The following examples came to my mind. 

 

1. Ripple Labs fills some XRP wallet and provides it to the financial institution, which pays Ripple Labs some money for it. The market is not affected, but the number of XRPs in circulation increased. This deal has no effect to the XRP price. 

 

2. Ripple Labs creates some oder(s) on RCL which the financial institution fulfills. XRPs in circulation increases, plus the XRP price within the market changes due to the deal. Here I am not sure how the deal on RCL can be guaranteed between two specific parties. In case this happens on the open order books e.g. I myself could participate on the oder(s) which might not be desired by the financial institution and Ripple Labs. In case this deal would happen on the open order books the price would play a bigger role because of "manipulation" of the price be it up or down. 

 

3. The financial institution goes to Poloniex and gets their stash there. Just joking. I think we agree this will never happen. 

 

The question remains. How does this work? Are there technical features on RCL or is there some known strategy on how this can be done? We know that the SBI gig is coming soon. They either already have or they still will receive their stash. So how can something like this be accomplished? Thanks gang. 

[Galahad]

Great question. Unsure if they even purchase XRP (Because if we did, we might actually see some positive price movement instead of the continued stagnation we see now. Sad.)

[nvok]

Increased circulation of XRP will always be accompanied by many times more increase in transactions/usage.

Any institution buying XRP directly from Ripple is clearly interested in holding or using XRP to do transactions and cut cost.

They have no reason to flood the market or cause XRP to drop. Everyone's goals are aligned perfectly.

 

more XRP = more liquidity = more stability = gradual increase in price and demand for XRP = everyone's happy

[Xi195]

35 minutes ago, xh3b4sd said:

I also wondered how the process of releasing XRPs into the market works on a technical level.

Ripple holds all of its XRP in various addresses. All of the XRP that they distribute are sold over the counter (a direct transaction between Ripple and the buyer as opposed to an open market buy), and go through XRP-II wihich is their licensed MSB and the name of the address they use to distribute them: https://bithomp.com/explorer/r9B3osCvQ28Chgv1qKDqwcGkQaDZJf4iqB

Sometimes XRP are "returned" so the net outgoing XRP from that address doesn't exactly match their distributed amount. Most weeks if you track the amount that goes out of that address to non-Ripple addresses and compare it to the distributed amount disclosed on their website, the two will match. 

Hopefully that answers your question. 

Edited June 12, 2017 by Xi195

[Filip]

My opinion is that there are flowing to many xrp in and out of the market. Xrps have never been in mined. They just exist! We dont know what monetary policy ripple is adopting to manage  price controle! For example, Former cofounder Jed has been given allot of xrp, never been mined! Banks have bougt xrp directly at Ripples counter to financial institutions for payment and wire transfere purposes. We dont know what they doing with those ripples! I bet you they are dumping easy obtained xrps on the market with higher prices!

if you look on the ripple website you can see a tab specially made for institutional customers! 

the simple fact that xrp does not have to be mined has an inflationary  effect on pricing.

it takes central banking skills to manage  price well! That said, decentralized xrp is more centralized than we think

[Alluvial]

Yes, it would be nice to get some clarification on how this works.  My guess - which could easily be incorrect - is that Ripple sells XRP to financial institutions through over-the-counter purchases.  In other words, they buy directly from Ripple at an agreed upon price.  They do not go into the market to buy.  Not sure if they get the XRPs at a discount, but I would guess that they do, and that the FIs have restrictions on selling.  When you look at the xrp distributions/additions by Ripple for the last few weeks you see this:

226,720,498 (net distribution)

-283,142,660 (net amount acquired)

372,379,491 (distribution)

-295,294,947 (acquired)

What is happening when Ripple acquires 283mm xrp in one week to its coffers, and then later adds another 295mm?  Does anyone have an explanation for this?  

 

[xh3b4sd]

6 minutes ago, nvok said:

Increased circulation of XRP will always be accompanied by many times more increase in transactions/usage.

Any institution buying XRP directly from Ripple is clearly interested in holding or using XRP to do transactions and cut cost.

They have no reason to flood the market or cause XRP to drop. Everyone's goals are aligned perfectly.

 

more XRP = more liquidity = more stability = gradual increase in price and demand for XRP = everyone's happy

Since this might be right, this is not the topic and does not answer any question I asked. Lets keep the topic up please. The question is how receive institutions and partners XRP. On the market? Off the market? How? 

[xh3b4sd]

7 minutes ago, Xi195 said:

Ripple holds all of its XRP in various addresses. All of the XRP that they distribute are sold over the counter (a direct transaction between Ripple and the buyer as opposed to an open market buy), and go through XRP-II wihich is their licensed MSB and the name of the address they use to distribute them: https://bithomp.com/explorer/r9B3osCvQ28Chgv1qKDqwcGkQaDZJf4iqB

Sometimes XRP are "returned" so the net outgoing XRP from that address doesn't exactly match their distributed amount. Most weeks if you track the amount that goes out of that address to non-Ripple addresses and compare it to the distributed amount disclosed on their website, the two will match. 

Hopefully that answers your question. 

This "over the counter" concept is new to me. Is there literature about it somewhere? So I understand that this is basically what I described as number 2 on my OP, with the only difference that the order is not open. Does this mean though that the market recognizes such transactions and that they effect the price potentially in both directions? 

[xh3b4sd]

9 minutes ago, Filip said:

My opinion is that there are flowing to many xrp in and out of the market. Xrps have never been in mined. They just exist! We dont know what monetary policy ripple is adopting to manage  price controle! For example, Former cofounder Jed has been given allot of xrp, never been mined! Banks have bougt xrp directly at Ripples counter to financial institutions for payment and wire transfere purposes. We dont know what they doing with those ripples! I bet you they are dumping easy obtained xrps on the market with higher prices!

if you look on the ripple website you can see a tab specially made for institutional customers! 

the simple fact that xrp does not have to be mined has an inflationary  effect on pricing.

it takes central banking skills to manage  price well! That said, decentralized xrp is more centralized than we think

IMO for your applies the same as for @nvok. Lets stick to the topic and answer technical questions. I do not want to be blunt, but I am not interested in opinions of price manipulations in this thread. I want to understand the matter and opinions are out of scope here. I am interested in facts. 

[nvok]

2 minutes ago, xh3b4sd said:

Since this might be right, this is not the topic and does not answer any question I asked. Lets keep the topic up please. The question is how receive institutions and partners XRP. On the market? Off the market? How? 

We don't know the exact agreement terms but it's off the market transaction.

I thought it was common sense so I skipped ahead.

 

Also, their strategy and model might change in the future which may increase activity on the exchanges.

Who knows one day merchants and consumers will have a need for XRP and it may even act as a way to store value.

[Xi195]

Just now, xh3b4sd said:

Does this mean though that the market recognizes such transactions and that they effect the price potentially in both directions? 

Since the sale is not performed on a public market it doesn't effect price discovery. If the buyer went and dumped their new found XRP on the market it would effect the price, but Ripple has lock-up agreements to prevent that from happening. 

3 minutes ago, xh3b4sd said:

This "over the counter" concept is new to me. Is there literature about it somewhere?

 Not that I know of. The first XRP quarterly report (Q4 2016) discloses how much XRP Ripple sold in USD for that quarter. Since the price was fairly steady at the time and we know how many theybdusteibuted (by tracking weekly distribution which has a dedicated topic here), you could determine  the lowest possible price that was paid. Since we don't know how many XRP Ripple gave away as some kind of incentive, it's not possible to determine the exact price. If you search "Q4 XRP Report" or something like that you should be able to find the topic and related discussion. 

If you look at the address I posted above (bithomp link), you can see that Ripple's XRP-II address sends out XRP as payments not exchanges (the drop down in the transactions column allows you to filter between the two). This means that they send the XRP on ledger, but they receive the payment through some other means (wire transfer, ach, etc.). 

Keep in mind that XRP leaving XRP-II for an address that is activated by XRP-II is likely XRP that is being moved to a Ripple owned cold storage address, not changing hands. 

[Filip]

17 minutes ago, Alluvial said:

Yes, it would be nice to get some clarification on how this works.  My guess - which could easily be incorrect - is that Ripple sells XRP to financial institutions through over-the-counter purchases.  In other words, they buy directly from Ripple at an agreed upon price.  They do not go into the market to buy.  Not sure if they get the XRPs at a discount, but I would guess that they do, and that the FIs have restrictions on selling.  When you look at the xrp distributions/additions by Ripple for the last few weeks you see this:

226,720,498 (net distribution)

-283,142,660 (net amount acquired)

372,379,491 (distribution)

-295,294,947 (acquired)

What is happening when Ripple acquires 283mm xrp in one week to its coffers, and then later adds another 295mm?  Does anyone have an explanation for this?  

 

That's exacly what i am wondering! Because of the siple fact that xrp does not have to be mined makes them the owner of the currencie. Does not sound very decentralized to me!  

This makes them responsible for proper monetary policy, and thats home to central banking discipline!

we dont know much of what really is going on!

How this is turning out????? Just look at the inflated price! That sais it all!

[Xi195]

35 minutes ago, Alluvial said:

What is happening when Ripple acquires 283mm xrp in one week to its coffers, and then later adds another 295mm?  Does anyone have an explanation for this?  

There's a disclosure at Ripple.com/XRP/market-performance that says "*Total includes business development agreements that are still pending."  I think deals fail to go through sometimes so an amount that was "distributed" one week is "returned" to Ripple another. I remember the first time this happened I thought the sky was falling but it has become more commonplace now. Also, I believe Ripple buys XRP from large holders before they had lock-up agreements (old employees maybe) who threaten to dump. I have no concrete evidence to demonstrate this but if true, this should offer a vote of confidence to holders (in other words Ripple buys XRP to protect the price/volatility). 

Edited June 12, 2017 by Xi195

[xh3b4sd]

11 minutes ago, Xi195 said:

Since the sale is not performed on a public market it doesn't effect price discovery. If the buyer went and dumped their new found XRP on the market it would effect the price, but Ripple has lock-up agreements to prevent that from happening. 

 Not that I know of. The first XRP quarterly report (Q4 2016) discloses how much XRP Ripple sold in USD for that quarter. Since the price was fairly steady at the time and we know how many theybdusteibuted (by tracking weekly distribution which has a dedicated topic here), you could determine  the lowest possible price that was paid. Since we don't know how many XRP Ripple gave away as some kind of incentive, it's not possible to determine the exact price. If you search "Q4 XRP Report" or something like that you should be able to find the topic and related discussion. 

If you look at the address I posted above (bithomp link), you can see that Ripple's XRP-II address sends out XRP as payments not exchanges (the drop down in the transactions column allows you to filter between the two). This means that they send the XRP on ledger, but they receive the payment through some other means (wire transfer, ach, etc.). 

Keep in mind that XRP leaving XRP-II for an address that is activated by XRP-II is likely XRP that is being moved to a Ripple owned cold storage address, not changing hands. 

The XRP-I and XRP-II addresses are super interesting. I do not understand what exactly flows and in which direction it does, but there are movements of millions of XRP per transaction. 

 

You say the transactions between Ripple Labs and their partners happens off the market. Why is that? Is the incentive for partners only to create liquidity on the network? Talking economics I have no clue about now. Does more volume appreciate the asset price? I am thinking that way. There are 100 billion XRPs. To make it easy, lets say global value transfer requires 100 billion USD. Now Ripple Labs distributes all XRP to financial institutions and they do their do. At the current price of around 25 cent only a quarter of the global value transfer can be done via XRP. How can we get to the full market in this example scenario when Ripple Labs distributes XRP without appreciating the price on its way? 

[Xi195]

7 minutes ago, xh3b4sd said:

You say the transactions between Ripple Labs and their partners happens off the market. Why is that? 

The simplest reason I can think of is to save money. If you trade on an exchange you are subject to the fees of that exchange (~.1-.25%). Ripple has been distributing roughly 3B XRP per year for the last few years. Can you imagine the fees? I'm guessing transparency is another reason. If the market knew exactly what was happening it might react a certain way. 

10 minutes ago, xh3b4sd said:

There are 100 billion XRPs. To make it easy, lets say global value transfer requires 100 billion USD. Now Ripple Labs distributes all XRP to financial institutions and they do their do. At the current price of around 25 cent only a quarter of the global value transfer can be done via XRP. How can we get to the full market in this example scenario when Ripple Labs distributes XRP without appreciating the price on its way? 

If I'm understanding you correctly you're saying that XRP at $25B mkt cap could only be used to facilitate 25% of daily payments assuming max daily payments were $100B. People fall into this line of thinking often. The thinking is that if XRP is to facilitate $1T per day in payments, Publicly available XRP must be worth $1T. This is not true for many reasons but the most obvious is that XRP moves in 3.7 seconds, therefore $100 worth of XRP could be used multiple times in one day to facilitate thousands of dollars in payments. 

I think the general premise that you're hinting at is that in order for XRP to significantly contribute to global cross-borders payment liquidity it needs to be worth more. I think that's true.