XRP Thesis: Trade finance disruptor of the future?


There are many reasons why people are so excited about Cryptos.

 Instead of looking at stores of value, let us look at Use Cases instead or the practical applications of a crypto currency. This way, it is easier to manage expectations into the future.

The leader at this point is Ethereum with it smart contracts via the Virtual Machine. Its clear Use Cases include rental contracts, insurance, sports betting etc. However, my crypto of choice is XRP because of its clear use case in disrupting a 1.6 Trillion dollar industry. Trade Finance.

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R3 via its distributed ledger platform Corda is able to process accounts receivable purchase transactions and letters of credit. For anyone familiar with trade finance the traditional processing of this work tends to be arduous.

Although Corda in itself is not a crypto but a “blockchain inspired” system.  But there were statements that Corda will support digital currencies “later.” The SBI group which is both part of the XRP consortium and the R3 consortium alluded that there may be synergistic areas, this could be one of them. 


Small problem, there is a lawsuit between R3 and Ripple. I will not go into the full details of the lawsuit, but needless to say, it is messy.

However, the proof-of-concept is certainly place for the potential for such a platform to be developed.
XRP is already used by banks, and it has been rumored to be restarting its Codius program (Ripple’s smart contract platform).

Given the stakeholders within Ripple themselves, I would be surprised if they are not tackling this potentially disruptive technology head-on.

The below reasons are why I believe Ripple will be the first to tackle the trade finance problem. I will use R3 and Ripple interchangeably because I believe the strategic thrusts of the two companies is to tackle the trade finance issue.

So when it comes to finding an edge, I like to refer to traditional economics. Here I refer to one of Warren Buffetts most recommended books, Adam Smith and the Wealth of Nations. 



Based on the concepts of Adam Smith, here is why I believe Ripple will succeed.

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1) Division of Labour /Specialization

The point of Satoshi Nakamoto paper was for no one entity to have complete dominion of the system. However this creates an unfocused network.
While most other Cryptocurrencies do have own development teams, they are often fragmented and have a tendency to be decentralized.
One team may be trying to tackle the rental contract Use Case, while others are doing Sports Betting. And within each team there are different sales staff, developers , testers, administrators etc..
Ripple has a singularly large team with multiple offices in locations all over the world. This ensures a concentrated effort towards a goal or multiple goals.
If Adam Smith has anything to say about efficiency of division of labour, he would most likely say Ripple has the most competitive edge here.


2) Productivity

Trade finance is that it is arduous and systematic, the ideal candidate for Automation. However, it requires advance knowledge of each various part of the value chain.

This requires a team who is an expert in each area so they can work systematically. This includes understanding the legal implications of trade finance and could be why R3 released the following paper:



Source: https://elaineou.com/


So now that R3 is no longer on friendly terms, is the Ripple team able to either 1) patch things up with R3 or 2) develop their own technology.

I believe the answer to be yes. This again because of the consortiums on both ends of the equations. The management will act in the best interest of the consortium.



3) Invisible Hand

The invisible hand mean that everyone will act in the interest of themselves, this in turn will benefit the community.

My belief is that Ripple has the economic means to support and attract the best developers and coders in financial terms. This best talent would likely mean the fastest to the use case.

Moat

Warren Buffett discusses when value investing, having a moat. One could call this a competitive advantage.

Does XRP have such a moat? Can such idea work on other platforms with smart contract enabled features such as NEO and ETH? Yes, in theory but banks will unlikely use it.

Charley Cooper, managing director of R3, once quoted that ETH has “issues around privacy controls, scalability, immutability of transactions, and consensus mechanisms for validating transactions”.
If this is true, then the moat will hold true till we see a new contender.

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But What If I Am Wrong?

So say I am completely wrong and this is not the business direction Ripple is headed towards. The downside risk to XRP is still limited.

Fastest Execution

XRP is already used by banks. Not just for the added privacy but for XRP speed of transfer.
Meaning there is use of XRP in its base form, so there is already some value there. Marketing efforts to use XRP have also been ramping up, Ripple offering rebates for financial institutions that are the first in their markets to process and promote commercial payments on RippleNet.



SWIFT, the current payments gateway for banks, is trying to compete with XRP by creating its own Cryptocurrency which may be better than XRP. But it is still in the Proof-Of-Concept phase.

55 Billion in Escrow



In order to reduce uncertainty as well as maintaining ongoing XRP distribution, Ripple has committed to placing 55 billion XRP into a cryptographically-secured escrow.
By securing this, “investors can now mathematically verify the maximum supply of XRP that can enter the market”.
This stability brought about by Ripple themselves means that even though upside is capped, downside is also somewhat capped.
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Summary

Given that XRP is over 70% owned by banks, and some of the consortiums money will be tied up, I doubt the volatility especially to the downside will be taken well by the invested banks.


So what we have is a cryptocurrency with a potentially massive use case, if successful. Even if unsuccessful, the downside is limited. 
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