Ripple could bring in hundreds of millions of dollars a month by selling a tiny fraction of its XRP holdings. The company put 55 billion XRP in an escrow account, which allows it to sell up to 1 billion every month. Ripple can sell XRP if it needs to make acquisitions or fund new projects.
Sixteen months ago, Ripple raised $55 million by selling equity in a typical Silicon Valley funding round from strategic investors, following earlier financing from Alphabet's GV (Google Ventures), Andreessen Horowitz and others. The round placed the value of the company around $400 million. Today the San Francisco start-up could bring in many times that amount of cash every month -- if it wanted to -- without giving up any company ownership or control. Ripple develops software that banks use for fast global financial settlements. But almost all of its current value comes from being the creator and majority holder of XRP
, a digital currency that was obscure a year ago, but now has a total market value of about $130 billion.
XRP, which trades publicly like bitcoin, went on an inexplicable rally starting last year. Even after plummeting from a high of $3.84 in early January to $1.30 (including a 30 percent drop on Tuesday), it's still up almost 200-fold in the past 12 months. Ripple owns about 60 billion of the 100 billion XRP created, giving it a market value -- based just on its holdings -- of close to $80 billion. The company's revenue is unknown, although CEO Brad Garlinghouse told CNBC that some banks are paying the company millions of dollars for its software. Regardless, $80 billion is far ahead of where any reasonable investor would value the company. A tough company to value
Ripple has placed limitations on how much XRP it can sell each month to remove the concern that it will suddenly flood the market with tokens. The company placed 55 billion of its XRP in a "cryptographically-secured" escrow account and can release up to 1 billion every month. Ripple has never come close to selling that amount in a month and said in December that it's averaged selling 300 million XRP a month since mid-2016. By selling a tiny fraction of its holdings each month, the company brought in over $90 million in the first three quarters of 2017.
Ripple hasn't released its fourth-quarter XRP report yet, but if it continued selling the same amount programmatically, as a percentage of overall XRP traded, it would have raised more than $75 million in the fourth quarter and another $150 million just in the first half of January. That doesn't include money made from direct sales. The company can dial back how much XRP it puts on the market, so there's no reason to expect that it's reeling in hundreds of millions of dollars a quarter. But just having that ability puts Ripple in a cash position that's extremely rare -- particularly for a start-up with just 170 employees -- and gives it the flexibility to quickly bring in money for a pricey acquisition, fund an ambitious new project or invest in other start-ups. Ripple executives just invested some of their XRP as part of a $25 million funding round in a storage start-up called Omni. Source
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