The central theses
- Despite its high transaction speed and low fees, Ripple is not preferred as Layer 2 for BTC.
- A significant percentage of Ripple’s daily payments are spam, which highlights the level of low activity on the network.
- The lack of smart contracts reduces Ripple’s transparency and prevents participation in the DeFi and Stablecoin sectors.
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As Ethereum is pulling more and more valuable Bitcoin into its network, Ripple is trying something very similar. However, the results seem far from convincing.
Everyone wants a piece of bitcoin
Bitcoin has the largest market capitalization and over 60% dominance in the crypto market. In addition, it is reported to be the most famous brand in the room. Any project interoperable with Bitcoin has the chance to attract a significant portion of the market’s attention.
So far, Ethereum has the greatest interoperability with Bitcoin.
With apps like connectionBitcoin hodlers can step into the growing field of decentralized financing (DeFi) and generate passive income with their unused coins. This opportunity resulted in significant traffic on the platform, particularly to packaged bitcoin (WBTC).
Source: DeFi Pulse
WBTC is a linked token, which means that for every token held by a custodian, an ERC-20 token is minted on Ethereum. Now it looks like the XRP ledger is trying a similar initiative.
While Ripple cannot expand Bitcoin’s computing capabilities, it can increase Bitcoin’s speed and reduce transaction fees.
Averages from on-chain data analyzed by Crypto Briefing
Due to the cheapness and speed of the transactions, Bitcoin in the XRP ledger can be useful for arbitrage as traders drive the activities in the chain. An influx of embossed BTC onto Ripple, with some accounts holding hundreds of thousands of tokens, suggests a possible surge in demand.
Source: XRP Ledger
In contrast to Ethereum, however, the XRP ledger cannot cope with the decentralized financial wave due to its limitations.
Trustworthy setups in a trustless world
Like WBTC, Ripple uses trusted token arrangements to mint bound tokens. These custodians in the Ripple network are known as “gateways”.
There is a handful of these reputable gateways. Given their BTC capitalization dynamics, it is obvious that they haven’t issued significant amounts of BTC lately. In addition, the BTC trading volume remains dismal.
Unlike WBTC, which only has one custodian, BitGo, Ripple can have an unlimited number of gateways.
Technically, any account can act as a gateway and issue non-XRP tokens like BTC, ETH, and USD. Ultimately, it is up to the users to decide which gateways to trust.
There is no limit to the number of tokens an account can issue. The only limitation is the number of tokens other users want to hold. In addition, an issuer can prevent issued tokens from being processed by the broader Ripple community.
As a result, one can issue tokens without actually holding BTC and transfer them between accounts.
A reputable gateway will have numerous connections to other accounts because they are actively in use. A fraudulent one is likely to have far fewer connections. In the example below, the BTC amount on an account linked to only three others was over 30,000 BTC.
Source: XRP charts
Another suspicious factor is frequent transactions of similar amounts coming in and going out between the same accounts.
Source: XRP charts
Ripple is inundated with such spam transactions.
According to the on-chain data analyzed by Crypto Briefing, there are more than ten addresses that are constantly generating large tied BTC payments among each other.
The accumulated number of daily payments for only three of them exceeds 9,000, more than 1% of the network’s current daily transactions.
It is important that these addresses use lines of trust that are not controlled in any way. Therefore, the bound BTC spent on them is not necessarily backed up by real bitcoins. As a result, this activity does not represent any real interest from the bitcoin community in Ripple.
The real state of affairs
While Ripple’s tied BTC numbers are being blown up by spam, actual activity in the chain is also disappointing. Daily transactions fell more than three times compared to the beginning of 2020.
A similar but worse situation can be seen with payments, which went from millions to tens of thousands in 2019-2020.
Source: XRP charts
Meanwhile, Ethereum’s daily transaction volume is increasing due to DeFi’s growing popularity. Also, more USDT are minted in response to market demand.
Source: EtherscanSource: LongHash
Unlike Ethereum and Tether, Ripple is struggling to find use in current market conditions.
Why not frizz?
Since the appearance of the first altcoin, the game should always offer a better alternative to Bitcoin. And it was easier to offer a better option before the market was saturated with thousands of altcoins.
Now the fixation on transactions per second ends with the release of Ethereum 2.0. It’s no longer compelling enough to be a faster version of Bitcoin.
Ripple has the potential to improve its market position with a smart contract layer called Flare.
Flare is focused on bringing XRP Ledger into the dApp space. it is currently in the Testnet level. At the moment, however, his weakness is showing.
Speculation alone cannot increase the price of XRP. In combination with the pressure on the sales side of the Ripple group and other insiders, tThe price will continue to fall until it can regain a foothold in the market.
Currently, traders are loading more conservative portfolios made up of bitcoin and stablecoins to hedge against the recent correlation of the crypto market with the stock market. Hot trends like DeFi are the exception to the norm and offer oversized returns.
Unfortunately for XRP, there isn’t much the technology can do to capitalize on any of these trends.
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