The Merkle

How Does Ripple’s Lockup of 55B XRP Work Exactly?

Ripple has made a lot of media headlines over the past few months. Not only is its native XRP asset surging in value as we speak, but the company is making inroads in the financial sector as well. Perhaps the biggest news of the past week is that the company locked up 55 billion XRP in escrow. It seems there is still some confusion as to how this will work exactly. Now is a good time to go over the details of this move and what it means for the future of both Ripple and XRP.

A Closer look at the XRP Escrow

Most cryptocurrency enthusiasts have taken a genuine dislike to Ripple and its XRP asset. It is often labeled as a digital banker coin, mainly because Ripple focuses on the financial sector rather than on making it obsolete. That being said, the project has a lot of merit, and banks all over the world have shown great interest in what the team has to offer. With XRP, real-time global payments may finally become a reality.

Even though Ripple’s asset is not a cryptocurrency, it is listed on a fair few cryptocurrency exchanges. It can be bought and sold in exchange for fiat currencies, Bitcoin, and so forth. This also means the value of XRP is subject to massive price fluctuations, although there has been a certain degree of stability over the past few months. However, one thing a lot of people have worried about is when the remaining XRP supply would be brought into circulation.

More specifically, the circulating supply of XRP is just over 38 billion tokens. The total supply is 100 billion XRP. This discrepancy has worried a lot of investors and speculators. Especially considering that 55 billion XRP is controlled by the Ripple team, people were worried the tokens would get dumped across exchanges at the highest possible value. To counter those concerns and to provide additional predictability to the XRP supply, the Ripple team had announced they would lock up these 55 billion tokens in escrow at some point in 2017.

That lockup finally happened earlier this week. All 55 billion tokens have been locked in a series of escrows, which can be verified through the company’s ledger. Every independent escrow contract contains one billion XRP, which means there are 55 such contracts on the ledger right now. Every month, one of these contracts will be released. This means one billion XRP will be freed up each month, though they will not be sold across exchanges.

Instead, the tokens will be offered to partners and interested parties at market price. Should a portion of the freed-up funds remain unsold, they will be put back in escrow and moved to the back of the queue. It is likely the amount of XRP brought into circulation each month will be far less than one billion, although it remains to be seen how Ripple’s partners respond to these offerings. The escrow itself uses multisignature security to ensure no unauthorized transactions can take place.

All things considered, it is a smart decision to use escrow-based solutions to lock up these 55 billion XRP. It means the funds will be kept off cryptocurrency exchanges while the team continues to expand their reach on an international scale. Moreover, it seems there is no limitation as to how long these contracts can remain in escrow, as the unsold amounts will simply be put back in the system.