Exploring the intricacies of Ripple, Coinbase, Ethereum, and XRP might reveal some unexpected insights.
Bill Morgan, who is qualified to practice law in both the UK and Australia, took to Twitter on May 10, 2023, to share his thoughts on these subjects, opening up an intriguing perspective on their interconnected operations and strategic directions.
In a series of tweets, Morgan delved into the business models of Coinbase and Ripple, comparing their revenue streams and dependencies. He highlighted a key point from an interview with Paul Grewal, Chief Legal Officer at Coinbase, by lawyer John Deaton, the owner of the Deaton Law Firm and the founder of the website CryptoLaw.
Grewal had shared that approximately 20% of Coinbase’s revenue originates from its international business. Morgan extrapolated this data from Coinbase’s quarterly report, which indicated that 54% of its transaction revenue is tied to Bitcoin and Ethereum.
Morgan interpreted this to mean Coinbase heavily relies on Ethereum trading within the United States. He further contemplated the potential issues that might arise if Coinbase were forced to suspend trading of Ethereum or Bitcoin on its US exchange.
Switching the focus to Ripple, Morgan pointed out that the company conducts 90% of its business outside the US. He noted, however, that the majority of Ripple’s income comes from a single source — the sales of XRP to On-Demand Liquidity (ODL) customers.
Morgan suggested that Ripple’s recent move with Liquidity Hub, which currently does not use XRP, could be a strategic decision to increase Ripple’s US business and lessen its reliance on XRP sales. He argued that this move allows Ripple to diversify its revenue sources.
In contrast, Morgan reasoned, Coinbase could not afford to halt trading of Ethereum and Bitcoin in the US as it did with XRP. He opined that such an action would pose an existential threat to Coinbase, whereas suspending XRP trading was a manageable act of expediency.
On 17 April 2023, Stuart Alderoty, Ripple’s Chief Legal Officer, explained why Ripple Liquidity Hub, launched on April 13, does not support XRP.
Alderoty clarified via Twitter that Liquidity Hub targets institutions rather than retail customers, noting the limited liquidity for XRP in the US. He said Ripple would support XRP in Liquidity Hub once a satisfactory customer experience could be ensured. He also emphasized that Liquidity Hub was designed to access a wide range of crypto liquidity, not just XRP.
Alderoty additionally pointed out the absence of regulatory clarity for XRP in the US, a significant consideration for enterprise customers. The lack of such clarity led to the decision not to support XRP in Liquidity Hub.
Lastly, Alderoty differentiated between On-Demand Liquidity (ODL) and Liquidity Hub. He stated that ODL, which uses XRP and continues to do so, caters to ODL customers. Ripple’s XRP sales, reported quarterly, are specifically for these customers, and ODL continues to thrive globally.