- Grayscale Investments, the world’s largest crypto asset manager, has published a report on Ripples cryptocurrency XRP.
- In the report, the company notes that XRP is more centralized than other cryptocurrencies.
The discussion of whether Ripple’s native cryptocurrency XRP is centralized is one of the hottest discussion topics on the market. Critics do not recognize XRP as a “true” cryptocurrency based on the fact that it is intended to serve the existing banking system. On the other hand, it is controlled by the company, Ripple, according to the XRP opponents. The advocates of XRP, just like Ripple itself, however, state that XRP is not centralized. In their view, XRP is an independent cryptocurrency that can continue to exist even without the company.
The question of centralizing XRP has now been addressed by the world’s largest crypto asset manager, Grayscale Investments. The company has released a report on XRP that analyzes the history, protocol, commercial technologies, transaction speed, and even the question of centralization.
Grayscale: XRP is more centralized than other cryptocurrencies
With regard to centralization, Grayscale states that XRP is less decentralized than other cryptocurrencies, for example, Bitcoin (BTC) or Ethereum (ETH). Grayscale attributes this to three core problems.
The first problem the investment company has identified is the existence of a central institution, Ripple, and its role in the network. This issue dates back to the creation of Ripple and the XRP Ledger. It was created in 2012 by David Schwartz, Jed McCaleb and Arthur Britto.
They created 100 billion XRP, of which 80 billion were provided in the form of a grant for the creation of today’s Ripple. Today, Grayscale says, Ripple, a privately held company is partially responsible for developing and supervising the XRP Ledger technology.
According to Grayscale, it is also important to note that about 21% of the nodes on the Unique Node List (UNL) are controlled by Ripple. In addition, although the XRP Ledger is an open financial network, Ripple decides which financial institutions can participate and use the RippleNet.
Vulnerability to “supply shock” and concentration in a few wallets
The second problem Grayscale perceives in relation to decentralisation is the vulnerability to market manipulation. Ripple holds approximately 56.7 billion XRP, including 6.7 billion XRP for investment and strategic purposes and 50 billion XRP in a escrow account. The XRP in the escrow account are subject to certain rules.
According to the company, a maximum of 1 billion XRP are released monthly through sales to institutional investors or exchanges. The remainder of the unsold limit is transferred back to the escrow account. Nevertheless, according to Grayscale, there is the potential for a “supply shock”. There is a risk that “large and/or persistent periodic sales could put pressure on the price of XRP”.
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The last problem that Grayscale has identified is the concentration of XRP in the top 100 wallets. Compared to other popular cryptocurrencies, the concentration is significantly higher, accounting for 75% of XRP not in escrow and 37.5% of all XRP in circulation.
The results of the Grayscale report are certainly no surprise to industry experts. However, the statements are remarkable as they come from a reputable company that holds more than $2.6 billion in cryptocurrencies, including the Grayscale XRP Trust.