Since the XRP launch by NewCoin (now Ripple) in 2012, the price of the cryptocurrency has been tied to the fate of the company that initially issued it. When Ripple is perceived to be doing well, the market for XRP typically responds positively. But when the company receives bad news, the token tends to dive.
The kind of reactive market dynamics observed with XRP and Ripple closely resembles the relationship between public companies and their share price. However, among rumors of an impending Ripple Initial Public Offering (IPO), XRP’s de facto role as a gauge of how investors feel about the company could soon be upended if it gets replaced by traditional stock options.
Ripple CEO Brad Garlinghouse first floated the idea of Ripple going public in 2020, when he said that the move would be “a natural evolution for our company.”
Significantly, some of the responsibilities listed in the job posting reflect the business practices of a public company. For example, the role would require drafting quarterly updates for shareholders and managing Ripple’s annual analyst day, an event typically reserved for publicly traded businesses.
For investors, Ripple’s prospective IPO poses an important question. Is it better to hold Ripple stock or XRP?
One of the major advantages of stock options over crypto is that shareholders automatically earn dividends based on the company’s profits. On the other hand, earning interest on XRP requires lending it out. There is also the additional step of cashing out XRP yields into fiat currency.
Typically, investors view blue chip stocks as a less risky investment when compared to cryptocurrencies. Some people also prefer the more tangible value of equity in a company.
However, the consensus among financial advisors is not to place all your eggs in one basket. If Ripple does IPO, inexperienced investors might be better off gaining exposure through Exchange Traded Funds.
Despite the risks associated with crypto investing, there are also reasons why people might prefer XRP over Ripple shares.
Many believe in the long-term potential of cryptocurrencies, in general, to deliver outsized returns compared to the stock market.
For XRP, the token’s finite supply could also attract investors. Whereas public companies often raise additional capital by issuing new shares, thus diluting the value for existing shareholders, XRP has a fixed supply and was designed to be deflationary.
While XRP’s deflationary economic model resembles Bitcoin, there is no way to mine XRP and all of the 100M tokens in existence today were pre-minted prior to the launch of the Ripple Ledger.
Upon creation, Ripple Labs received 80% of the total XRP supply.
In 2017, the company locked 55B XRP in a cryptographically secured escrow account, which releases 1B tokens back each month. Most months, Ripple redeposits around 80% of its unlocked XRP back into escrow.
As of March 19, 2023, Ripple’s escrow account still contained 42.8B tokens. The company maintains a liquid XRP stash of around 5.5B tokens. The remaining XRP is distributed among investors.
Including funds held in escrow, Ripple still holds nearly half of the total XRP supply. But each time the firm sells or gives away tokens, the cryptocurrency becomes less concentrated.
If Ripple ever relinquishes its grip on XRP, the token could become untethered from the ups and downs experienced by its parent company and trade as a truly decentralized digital asset.