Last year, Ripple, the company behind XRP (CRYPT: XRP)finally settled its long-running lawsuit with regulators. Just a few months later, seven spot ETFs, including the XRP Canary ETFLaunched in the United States, it quickly recorded more than $1 billion in capital inflows.
These should have been massive catalysts for the price of XRP. And they were… for a while. But after peaking above $3.50 in July, the token has already returned to $1.40. below where it was before the lawsuit was settled and the ETFs were launched.
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So what’s going on? And what does the future hold for XRP investors?
The banking adoption thesis has a critical flaw
To understand what is happening, it is necessary to understand the core of the XRP bullish thesis. The idea has always been that as banks and major financial institutions adopt Ripple’s technology, demand for XRP will increase and the price will follow. The problem is that this doesn’t understand what banks actually use and how they use it.
Traditionally, Ripple has provided two main products: RippleNet and On-Demand Liquidity (ODL). Although they have since been repackaged as part of a rebrand, the distinction remains. The table below shows the key differences you need to know.
|
|
RippleNet |
ODL |
|---|---|---|
|
Main use case |
Bank settlement |
Cross-border transactions |
|
Primary users |
Big banks |
Fintechs and remittance providers |
|
Ripple Volume Share |
Most |
Minority |
|
Direct use of XRP |
None |
Optional |
The key takeaway here, without getting into the nitty-gritty of how they work, is that Ripple’s most popular product, RippleNet, does not create direct demand pressure, and will not no matter how many additional banks use the technology.
ODL, the product that uses XRP, handles less transaction volume and, most importantly, even this has a much weaker effect than the bulls imagine.
Ripple stablecoin makes the problem worse
To compound the problem, Ripple has introduced a stablecoin that can replace XRP in cross-border transactions, further reducing the effect that ODL adoption can have on the price of XRP.
The stable currency, RLUSD (like all stablecoins) is designed to maintain a value of $1 at all times. That’s exactly what banks are looking for. If they can avoid the risk of dealing with a volatile asset like XRP, they will.
The image of five years
Five years from now, Ripple will likely be a significantly larger payments infrastructure business than it is today. I’m not arguing that.