What is XRP Ledger?
In 2011 and early 2012, Arthur Britto, Jed McCaleb, and David Schwartz developed the source code for a blockchain which is now known as the XRP Ledger. They aimed to create a faster, cheaper, and more energy-efficient alternative to the Bitcoin blockchain. XRP is the native digital token of the XRP Ledger, and the XRP Ledger requires XRP to operate.
In 2012, Arthur Britto, Christian Larsen, and Jed McCaleb founded Ripple Labs Inc. (Ripple Labs). Since its founding, Ripple Labs’s mission has been to use technology to facilitate the transfer of value across the internet. Specifically, Ripple Labs seeks to modernize international payments by developing a global payments network for international currency transfers. Ripple Labs developed a software product called RippleNet, which allows customers to clear and settle cross-border financial transactions on mutually agreed upon terms.
One feature of RippleNet is known as “on demand liquidity” (ODL). ODL facilitates cross-border transactions by allowing customers to exchange fiat currency (for example, U.S. dollars) for XRP and then the XRP for another fiat currency (for example, Mexican pesos).
The XRP Ledger is based on open-source software. Anyone can use the XRP Ledger, submit transactions, host a node to contribute to the validation of transactions, propose changes to the source code, or develop applications that run on the ledger. Other developers have built software products that use the XRP Ledger, such as payment-processing applications.
In 2020, the XRP Ledger Foundation was founded. The XRP Ledger Foundation is an independent non-profit entity, aimed at advancing the development and adoption of the decentralized XRP Ledger. The foundation aims to provide support to key contributors, create governance standards, maintain a Unique Node List (UNL), and manage code and development of the XRP Ledger. It seeks to foster an open and sustainable community of developers and users who actively participate in decision-making processes and development of the XRP Ledger. The Foundation received an initial donation of over $6.5M from various parties, including Ripple Labs, to fund the Foundation’s work with developers and other community members building on the XRP Ledger.
What is XRP token?
XRP is the native token on the XRP Ledger network that serves as an unit of account, means of payment, store of value, and provides additional utility on Ripple’s RippleNet.
When the XRP Ledger launched in 2012, its source code generated a fixed supply of 100 billion XRP. Of the 100 billion XRP generated by the XRP Ledger’s code, the three founders retained 20 billion for themselves (including 9 billion for Christian Larsen) and provided 80 billion XRP to Ripple Labs.
Of the 100 billion units of XRP, approximately 55 billion units are currently in circulation. Most of the remaining tokens are kept in an escrow account by Ripple Labs.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about XRP, including an opinion that XRP is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of XRP prior to making it available on Wealthsimple Crypto and has concluded that XRP is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated XRP based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of XRP, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created XRP;
- The supply, demand, maturity, utility and liquidity of XRP;
- Material technical risks associated with XRP, including any code defects, security breaches and other threats concerning XRP and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with XRP, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of XRP.
Like all other crypto assets, there are some general risks to investing in XRP. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure.
In contrast to networks like Bitcoin and Ethereum, where multiple parties participate in development, Ripple Labs and the XRP Ledger Foundation supervise the ongoing development of the software underlying the XRP network.
Ripple Labs, the XRP Ledger Foundation and the XRP community may not be under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of XRP may have no recourse to Ripple Labs, the XRP Ledger Foundation or other parties if XRP declines in value for any reason.
XRP may present heightened concentration risk. The initial distribution of the total supply was split 20% to XRP’s founders, and 80% to Ripple Labs. Of the initial portion gifted to Ripple Labs, 55% was placed into escrow, of which approximately 42 billion units of XRP remain as of March, 2023.
In December 2020, the U.S. Securities and Exchange Commission (SEC) sued Ripple Labs and certain of its executives in U.S. federal court. The SEC alleged that in 2013 the defendants began extensive marketing efforts representing they would search for purported ‘use’ and ‘value’ for XRP and casting XRP as an opportunity to invest in those efforts. The SEC claimed that certain sales of XRP by Ripple Labs and its executives breached U.S. securities laws. In July 2023, the judge presiding over the case found that some, but not all, of the sales of XRP by Ripple Labs and its executives breached U.S. securities law. The judge also ordered that there be a trial for certain remaining issues. In the decision, the judge stated that XRP, as a digital token, is not in and of itself a type of security called an “investment contract”.
Although the decision states that XRP is not a security, the decision does not address whether secondary market sales of XRP are sales of securities. As well, the litigation is ongoing. The decision may be appealed and a higher court in the U.S. legal system could reach different conclusions. The case is Securities and Exchange Commission v. Ripple Labs and others, U.S. Dist. Ct. (SDNY) Case 1:20-cv-10832-AT-SN.
As a result of the ongoing litigation, there may be higher legal and regulatory risks associated with XRP. As a result of developments in the litigation or otherwise, Wealthsimple may determine that it must suspend trading and other services in connection with XRP or end support for XRP entirely.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading XRP. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 23, 2023. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 13, 2023