Last week, a blockchain analysis firm called Messari published a report claiming Ripple may have overblown XRP's circulating supply and market cap by up to 48%. Though the report has failed to make even a dent in the price of XRP, it has already successfully stoked discussion on social media regarding the relevance of market cap as a measure and the differences between Ripple and Bitcoin; not to mention criticism against Messari's research methodology and intentions, a backlash which culminated in threatening tweets and calls directed personally at Messari's CEO, Ryan Selkis.

From the first headlines to the accusations that this was all a publicity stunt, you will find a summary of this multi-layered story below.

What happened?

Messari’s report

On January 24th 2019, hours before Ripple released its Q4 2018 report, a crypto intelligence firm called Messari posted a summary of their original research into 'the health and legitimacy of the currently quoted XRP market cap' on their own website. 'We believe,' the team wrote, 'the figure is significantly overstated. Potentially by as much as $6.1 billion.' A tantalizing idea that would be reproduced across crypto media headlines that day.

Bear in mind, this post was merely a summary of the research. Messari only made the complete Ripple report available for subscribers of the ironically named newsletter, 'Messari's Unqualified Opinions', a decision that would, predictably, attract the suspicion that this has all been a publicity stunt executed by an under-the-radar firm.

The community response

But discussion on social media has gone beyond that accusation. For a representative corpus of these discussions, refer to the original Messari tweet here, and discussion on Reddit here. The section “Criticism for Messari and the report” below reviews the most interesting points brought up by the crypto community.

By January 25th, Messari founder and CEO Ryan Selkis reported having received harrasment on Twitter and threatening calls that he allegedly denounced with police.

Ripple’s response

The single response from Ripple so far came from an unnamed spokesperson who told media that Messari’s report contains “several inaccurate assumptions around lockups and selling restrictions (and) the entire report is based on an incorrect calculation of market cap,” and stated Messari’s calculations of Ripple’ market cap are not a clear representation of the truth.

Ripple’s report

On the 24th, Ripple released its Q4 2018 report. The document claims that Ripple sold $129.03M worth of XRP last quarter (adding programmatic sales and institutional direct sales) and $535.56M in total in 2018. These sales would account for 0.24% of global XRP volume. Furthermore, 3B XRP coinc have been released from escrow, 2.4B returned to new escrow contracts, and the remaining 600M XRP being used to support the RippleNet Accelerator Program and Xpring investments like Securitize, among other things.

Messari’s response

Messari has published two public posts on their blog since the 25th. In the first, Selkis described the harassment he has received (which included a phone caller who recited his wife’s birthday to him) and demanded that Ripple denounce the violence stemming from their base. This act in itself has also generated unsympathetic responses generated unsympathetic responses.

In the second, the team reacts to some of the community criticism. Read the section “Details from Messari’s response” below for more details.

The Messari report summary dissected

Find the Messari report summary here.

For their research, the team reviewed public tax records for the RippleWorks foundation and XRP wallet addresses.
They found Ripple held “at least 2.8B XRP coins on April 30, 2017, and now holds 2.5B XRP (bound by daily selling restrictions based on “a percentage of the previous 24 hours total trading volume). Messari assumes no additional foundation contributions from Ripple or Chris Larsen in 2017 and 2018.
Due to Ripple’s selling restrictions, co-founder Jeb McCaleb’s 6.7B XRP are locked, only sellable “at a theoretical rate of 1% of daily trading volume”, though Jed has said it is 'significantly less', and has refused to reveal how reference trading volume is calculated. Co-founders Arthur Britto and Chris Larsen could have similar selling restrictions on their allotted XRP, but “those unknown amounts” were not included in Messari’s analysis.
Messari believes “current circulating supply estimates include an illiquid position of 5.9 billion Ripple (XRP), which has been publicly committed, but not yet donated, by co-founder Chris Larsen to RippleWorks” This donation was acknowledged in August 2014 by Ripple on a (now deleted) post from the company’s CMO on the 'RippleForum.'
Messari estimates that 4.1B XRP coins sold via the company’s money services business may be subject to re-selling restrictions (per the company’s own transparency reports). They warn, “it is impossible to track the magnitude of this illiquidity without direct disclosures from Ripple”.
Thus, 19.2B of the 41.0B Ripple coins considered “in circulation” may be illiquid or subject to selling restrictions. Messari warns there may be even more restricted XRP in distributions to investors, banking partners, and team members.
“Ripple has not shared the methodology or reference exchange data it uses to calculate trading volume for XRP, a critical data point that drives selling restrictions. More than 99% of XRP trading volume appears to come from overseas, many of which have been suspected of wash trading.”

Report conclusions

Ripple’s XRP API is an inaccurate source for circulating supply and network liquidity figures; they urge Ripple to 'disclose its volume-based selling methodology, as well as the amount of XRP subject to contractual volume-based selling limitations over time.'
In addition to the 59B XRP held on Ripple’s balance sheet (52.5B in escrow, 6.5B available for sale), there could be significant, persistent sell-side pressure in the XRP market depending on the length and structure of selling restrictions placed on Ripple’s market making partners, a Ripple affiliated foundation, and Ripple’s co-founders, all of which appear to have negotiated rate limits for sales based on exchange trading volume of XRP.
XRP’s liquid circulating supply and market cap could be overstated by 48%, which would put total Ripple market cap at $6.9B rather than the $13.0B widely reported at current USD-XRP exchange rate.

What does Messari want?

Messari is a blockchain data analysis company catering to investors, regulators, and the public, who seeks to 'bring transparency and smarter decision making to the cryptoasset space.''

Selkis has called Ripple’s documents 'transparecy theater'. In their post, the Messari team states that transparency from Ripple’s side regarding its volume-based selling methodology and XRP volume-based selling limitations is 'necessary in order to help investors better understand the inflation and selling pressure in one of the industry’s largest assets (and to) protect consumers and promote fair and efficient crypto markets'.

Criticism for Messari and its report

The Ripple base has reacted to the report. Besides the harassment Selkis was a target of and Messari’s original tweet being flagged as problematic by a user (though Twitter does not agree with this judgment), plenty of criticism seemed to stem from genuine concern over Messari’s methodology and intentions in creating the report.

Here are some ideas and pieces of criticism found among community discussion that stand out as interesting points:

Messari chose to dissect Ripple’s numbers and not those of any another coin, like for example Bitcoin. The point of this argument is that one can easily claim that Bitcoin too has less liquidity than market indicators show, since many tokens have been lost forever. So why go after Ripple? See this argument put forth here, here and here, and refer to “Why the report touches a nerve in the crypto community” below for an explanation of the Ripple vs. Bitcoin rivalry.
Circulating supply and market cap may not be very meaningful measures for a cryptocurrency, and to decide to recalculate market cap for one coin and then compare it to the rest seems biased. The points raised by Messari would therefore be irrelevant to the price of XRP or its adoption, rendering the report rather vacuous. See this discussion here and here. Messari responds to this specific criticism in its latest post; read about this in the following section.
This report, which Messari itself admits “lacks precision” (see introductory paragraph of summary) is based on too many willful assumptions that can only be corroborated by Ripple itself. Read this discussion here and here.
Finally, the posts’ incendiary headline coupled with the fact that the actual research report is only available for subscribers to Messari’s newsletter, and the growing realization in the community that the research itself may not contain any discoveries of relevance anyway, has sparked the suspicion that all that is behind this was a publicity stunt to get Messari on the map. See this comments here.

Details from Messari’s response

In a January 25th blog post, Selkis claims “(Ripple) has a pattern of stoking its “base” when convenient, but staying silent when the degenerate #XRPthestandard society attacks researchers, journalists, or anyone who dares ever question the hype.” As was mentioned above, Selkis took this opportunity to describe how he was harassed (including a phone caller who recited his wife’s birthday to him) and to demand that Ripple denounce the violence stemming from their base.

But Messari has, despite the negative backlash, highlighted some positive feedback received for the Ripple post.

Their January 28th blog entry reads “The most consistent valid critique was some version of 'well, why don’t you apply this logic to all assets?' Simply stated, we’re working on it. In fact, we will be rolling out our methodology for calculating 'liquid supply” in the coming weeks.'

Why the report touches a nerve in the crypto community

Context is crucial to understand this story, so we'll make it explicit: for the crypto community, Ripple Labs and Bitcoin represent opposite camps in cryptocurrency ideology. Just for the purposes of this post, let's call these camps bank-adjacent, and anti-bank.

Ripple is bank-adjacent because it is a VC-backed company who's main objective is to make the sending and processing of international payments more efficient for banks, corporates, SMEs and payment providers. The RippleNet payment network and its XRP token are products created specifically for this purpose. Meanwhile, Bitcoin was at its origins a cryptography project born from the cypherpunk scene, envisioned to replace traditional fiat financial institutions, not better them. True, it has been a long ten years since Satoshi's whitepaper, and for many today Bitcoin is just an investment tool; but for plenty others, it represents a libertarian, anti-regulatory sentiment that they will uphold fiercely.

Ripple Labs' CEO, Brad Garlinghouse, really crystallized the dichotomy when he compared Bitcoin vs. Ripple to Napster vs. Spotify. In his own words, while the first was a pioneer in digitizing music, it was ultimately the latter who found success, because it abided existing regulations rather than try to defy them headfirst, an action that ended in Napster's demise.

This is why so many responses to Messari’s report seem to focus on the fact that they’ve “attacked” Ripple, but let Bitcion be; it is perceived as tapping into that rivalry.

Conclusions

Upon closer inspection of Messari’s report and of the series of events that have unraveled in consequence, it becomes evident that the backlash has overshadowed the actual research itself, at least for the community.

After media initially tagged along with the urgency that Messari’s post communicated, the community was quick to dissect the information and criticize. The price of XRP has not showed any reaction to the whole ordeal, Ripple has barely responded, and even Messari is moving on.

This debacle may have been just 15 seconds of fame for Messari – but it is also possible that the questions it has (perhaps unintentionally) raised in the crypto community regarding how we calculate market cap and whether we really need this measure, will stay with crypto holders and investors for a while.

As always, thank you for reading.

The Coin360 Editorial team

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