San Francisco-based blockchain payment company Ripple has released 1 billion XRP tokens from two escrow wallets, according to data provided by Bithomp's XRP Ledger explorer.The XRP is down 1.93% over the past 24 hours, according to data provided by CoinMarketCap. The token is currently trading at $0.38 on major spot exchanges.Back in 2017, the company locked 55% of the total supply of XRP in a series of escrows. It capped the number of new tokens that can be brought into circulating at 1 billion XRPs per month.
The release of one billion XRP each month is not new. Ripple has locked 55 billion XRP, or 55% of the total possible supply, into a series of escrows that release one billion XRP every month, according to a Ripple blog post from 2017. These escrows are on the ledger itself and the ledger mechanics, enforced by consensus, control the release of the XRP.
XRP Price Stable as Ripple Unlocks 1 Billion Tokens From Escrow Wallet
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XRP prices, currently at about US$1.60, have been relatively stable, within the 24-hour trading range of US$$1.54 to US$1.62 as of publishing time. XRP prices surged by almost 200% in April from US$0.55 at the start of the month to US$1.63 on April 30. XRP is currently the fourth largest cryptocurrency in the world with a total market value of about US$74 billion, which is about 3% of the total cryptocurrency market value.
In two separate transactions, the blockchain startup issued 1 billion XRP for its escrow wallet. According to Whale Alert, the Ripple Escrow wallet has unlocked $423 million worth of tokens from escrow. At the time of publication, the XRP coin was trading at an average price of $0.417. Prices of XRP tokens
Over $73 million worth of XRP tokens were purchased in numerous transactions in the previous 24 hours, according to Whale Alert. Over 175 million was obtained from numerous exchanges in three separate deals. Meanwhile, a total of 120 million XRP (about $50.1 million) was transferred from one whale wallet to another.
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From a technological perspective, there are various ways in which public blockchain tokens can be created (see Roth, Schär, and Schöpfer, 2019). However, most of these options can be ignored, as the vast majority of tokens are issued on the Ethereum blockchain through a smart contract template referred to as the ERC-20 token standard (Vogelsteller and Buterin, 2015). These tokens are interoperable and can be used in almost all DeFi applications. As of January 2021, there are over 350,000 ERC-20 token contracts deployed on Ethereum.3 Table 1 shows the number of tokens listed on exchanges and the aggregated token market cap in USD per blockchain. Almost 90 percent of all listed tokens are issued on the Ethereum blockchain. The slight deviation in terms of market cap originates from the fact that a relatively large portion of the USDT stablecoin has been issued on Omni.
Generally speaking, there are three backing models for promise-based tokens: off-chain collateral, on-chain collateral, and no collateral. Off-chain collateral means that the underlying assets are stored with an escrow service, for example, a commercial bank. On-chain collateral means that the assets are locked on the blockchain, usually within a smart contract.4 When there is no collateral, counterparty risk is at its highest. In this case, the promise is entirely trust-based. Berentsen and Schär (2019) have analyzed the three categories in the context of stablecoins.
On-chain collateral has several advantages. It is highly transparent, and claims can be secured by smart contracts, allowing processes to be executed in a semi-automatic way. A disadvantage of on-chain collateral is that this collateral is usually held in a native protocol asset (or a derivative thereof) and, therefore, will experience price fluctuations. Take the example of the Dai stablecoin, which mainly uses ETH as its on-chain collateral to create a decentralized and trustless Dai token pegged to the value of 1 USD. Since there is no native USD-pegged token on Ethereum, Dai tokens must be backed by another asset. Whenever anyone wants to issue new Dai tokens, they first need to lock enough ETH as underlying collateral in a smart contract provided by the Maker Protocol. Since the USD/ETH exchange rate is not fixed, there is a need for over-collateralization. If the value of the underlying ETH collateral at any point falls below the minimum threshold of 150 percent of the outstanding Dai value, the smart contract will auction off the collateral to cancel the debt in Dai.
Although stablecoins serve a vital role in the DeFi ecosystem, it would not do justice to the subject of tokenization to limit the discussion to these assets. There are all kinds of tokens that serve a variety of purposes, including governance tokens for decentralized autonomous organizations (DAO), tokens that allow the holder to perform specific actions in a smart contract, tokens that resemble shares or bonds, and even synthetic tokens that can track the price of any real-world asset.
Constant Function Market Maker. A constant function market maker (CFMM) is a smart contract-liquidity pool that holds (at least) two cryptoassets in reserve and allows anyone to deposit tokens of one type and thereby to withdraw tokens of the other type. To determine the exchange rate, smart contract-based liquidity pools use variations of the constant product model, where the relative price is a function of the smart contract's token reserve ratio. The earliest implementation I am aware of was proposed by Hertzog, Benartzi, and Benartzi (2017). Adams (2018) has simplified the model, and Zhang, Chen, and Park (2018) provide a formal proof of the concept. Martinelli and Mushegian (2019) generalized the concept for cases with more than two tokens and dynamic token weights. Egorov (2019) optimized the idea for stablecoin swaps.
Asset-Based Derivative Tokens. Asset-based derivative tokens are an extension of the CDP model described in Section 2.3. Instead of limiting the issuance to USD-pegged stablecoins, the locked collateral can be used to issue synthetic tokens that follow the price movements of a variety of assets. Examples include tokenized versions of stocks, precious metals, and alternative cryptoassets. The higher the underlying volatility, the larger the risk of falling below a given collateralization ratio.
There are several implementations of on-chain fund protocols, including the Set Protocol (Feng and Weickmann, 2019), Enzyme Finance (formerly Melon) (Trinkler and El Isa, 2017), Yearn Vaults (Cronje, 2020), and Betoken (Liu and Palayer, 2018). All of these implementations are limited to ERC-20 tokens and Ether. Moreover, they heavily depend on price oracles and third-party protocols, mainly for lending, trading, and the inclusion of low-volatility reference assets such as the Dai or USDC stablecoins. Consequently, there are severe dependencies, which will be discussed in Section 3.2.
Efficiency. While much of the traditional financial system is trust based and dependent on centralized institutions, DeFi replaces some of these trust requirements with smart contracts. The contracts can assume the roles of custodians, escrow agents, and CCPs. For example, if two parties want to exchange digital assets in the form of tokens, there is no need for guarantees from a CCP. Instead, the two transactions can be settled atomically, meaning that either both or neither of the transfers will be executed. This significantly decreases counterparty credit risk and makes financial transactions much more efficient. Lower trust requirements may come with the additional benefit of reducing regulatory pressure and reducing the need for third-party audits. Similar efficiency gains are possible for almost every area of the financial infrastructure.
Dependencies. As described in Section 3.1, some of the most promising features of the DeFi ecosystem are its openness and composability. These features allow various smart contracts and decentralized blockchain applications to interact with each other and to offer new services based on a combination of existing ones. On the flip side, these interactions introduce severe dependencies. If there is an issue with one smart contract, it may potentially have wide-reaching consequences for multiple applications across the entire DeFi ecosystem. Moreover, problems with the Dai stablecoin or severe ETH price shocks may cause ripple effects throughout the whole DeFi ecosystem.
Data from Whale Alert showed big transaction activity in December, including five transfers of 90 million tokens in the space of 24 hours worth $73.38m via Binance, HitBTC and Bithumb. The year ended when a whopping 500 million XRP was unlocked from escrow, worth $417.5m on 31 December. A decidedly modest 20 million tokens, worth $16.1m, were transferred on the same day. Activity early in 2022 has been slow, to say the least, with another 25 million (worth $19.3m) moved to an unknown wallet and 15 million worth $11.5m in two notable transactions. 2ff7e9595c
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