Brad Garlinghouse, chief XRP promo-man and CEO of “technology company” Ripple Labs, made an unexpected appearance on a Twitter Spaces hosted by Mario Nawfal on Sunday, November 13 – just as the full extent of Sam Bankman Fried’s empire of lies was becoming understood.
It was supposed to be a constructive discussion about what the industry can do to help guard against mega frauds. But it turned out to be so much more. (Nawfal’s Spaces have also been attracting everyone from Elon Musk to Kim Dotcom.)
Readers may recall The Blind Spot’s deep dive into the depths of the XRP hustle a couple of months ago. Of all the pointless crypto ventures, XRP has always seemed the most acute to us in terms of over-dependence on ridiculously valued crypto tokens that the founding entities control but claim not to control because of complex arms-length structures they instituted post facto (hints of Alameda and FTX not at all).
As for influence operations… XRP’s footprint speaks for itself.
From cosying up with regulators and celebrities like Ashton Kutcher, to hob-nobbing with the powers that be at Davos, XRP has done it all. And very proudly.
Though, perhaps, not quite as effectively as SBF, since the $690k they spent on lobbying the US government in 2020 didn’t put off the Securities and Exchange Commission from going after them in December 2020. Small surprise, Garlinghouse may be bitter about that.
The SEC filed a lawsuit against Ripple and its two senior executives in December 2020, alleging that the cryptocurrency XRP is an unregistered security because its only utility since 2013 has been to be an investment contract in a company that uses it for its payment software.
Meanwhile, Ripple takes great pains to plausibly deny any role cultivating the digital XRP army — a phenomenon best described as a dark arts influence op that likes to unleash untold grief and harassment on anyone questioning the merits of XRP on the internet. The army has recently allied itself with the Qanon movement, which now argues that once the financial system collapses, it will be XRP that takes over.
So what does Brad have to say about the FTX affair?
The session begins calmly enough. Brad says he’s only really there to listen in on what others have to say. But yes, he was surprised by how quickly everything at FTX unfolded while cautioning it’s “hard to know what are all the facts right now”.
Brad says he spoke with SBF just the previous Wednesday “in the kind of, like, ‘hey how can the industry help you'” way? He was, however — much like Elon Musk — already sensing bullshit. Some of the things SBF was tweeting simply weren’t matching with what he was telling Brad on the phone. That made Brad’s bullshit metre go off.
Brad now pivots to flagging concerns about how the affair will rub off on other market participants. He fears regulators will jump to conclusions about everyone in the industry. He expands thusly:
“The one big unknown we should all be watching for and care about, it clearly will be a call to action for segments of regulators who are going to say “this is what’s wrong with crypto” when in reality this isn’t a crypto-specific problem and in fact, as I think people on Twitter have commented, the SEC was actively meeting with Sam. And you know in some ways it really isn’t that dissimilar to the SEC spending all their resources on things that aren’t a problem and completely missing the Bernie Madoffs, and in this case, you know what appears to or is alleged to be a pretty egregious. And I think the likelihood is unfortunately Sam’s going to end up in jail.”
Having brought up the regulatory issue, the host and
co-speaker Simon Dixon take the opportunity to press Brad about his own regulatory issues.
“Hey, Brad, do you want to talk about the SEC case, give us an update?”
Brad says the motions for summary judgments will be fully briefed by the end of November, at which point the case will sit before the judge. At this point, he makes a passing reference to
the Library vs SEC case, whose judgment
in favour of the SEC on November 14 has by now been utterly overshadowed by events at FTX. Brad stresses he doesn’t agree that the
case sets a major precedent for treating crypto tokens as subject to securities law. (Because of course if he did, it would undermine Ripple’s own case.) Brad notes:
“The library case I think people are saying various comparisons, but it doesn’t really compare in terms of their legal strategy and the facts. There’s a whole bunch of things that are just very very different about them. That gave the SEC something to crow about.You know, when this whole shit show started with the SEC I tweeted out in December of 2020 that this was an attack on the whole industry and not just an attack on Ripple, and I think candidly a lot of people called bullshit that’s not true.”
Dixon continues to probe.
“Brad, how do you mark XRP on Ripple Labs’s balance sheet? Is it mark-to-market?” he asks.
“It’s zero,” says Brad confidently.
Dixon presses on: “Is that how you think it should be with all these companies?”
An increasingly exasperated Brad replies that he doesn’t know. “I mean, like facts and circumstances. I don’t want to opine on how other people should do it.”
When it comes to Ripple, Brad stresses they have no debt.
“For all intents and purposes we’ve never had any debt, we’ve got a billion dollars of cash.”
But Dixon continues: “So which entity owns the XRP?”
The answer is mysterious.
“Well yeah Ripple Labs, the parent company …. all the things I just said regard Ripple Labs the parent. Where it sits in a particularly subsidiary or something like that for structural reasons is kind of irrelevant for that purpose.”
Dixon follows up again: “But does it get factored into your equity value when raising finance, the number of XRP on the balance sheet?”
Defensive Brad now makes an appearance:
“We haven’t raised, I mean… that’s not a question for me to answer, right, because I’m not the investor you know. It’s just somebody coming in to invest in Ripple and make a determination on all the assets that Ripple has. We have a, you know, rapidly growing business, we own a bunch cash. We’ve invested over $500m in over 60 companies across the crypto space – some XRP-related. Some having nothing to do with XRP. I’ll let others opine about that. We haven’t raised money in a long time. The last private money we raised was at a $10bn valuation in, uh, 2019 I think.”
Dixon suddenly reveals he’s a Ripple shareholder from a long time ago and that he is seemingly no wiser. He pursues the same line of questioning: “So the XRP on the company balance sheet across the whole group is just marked at zero? It doesn’t factor in? How do you account that asset? Because you do sell a lot of those XRP?”
Brad now brings out the obfuscation.
“We do sell some, only to customers and if you’re paying close attention we repurchase the vast majority of what we sell and you know when we sell it then it’s marked at the price it’s sold – that’s revenue from an accounting point of view.”
This implies XRP float sits somewhere in the ether until it is sold to the market, after which time it is booked as revenue. The act of selling the magical XRP is the service being offered by Ripple.
Brad now steps back to argue it’s more important to look at what’s going on in the industry because Ripple has taken a very “transparent view” by doing a quarterly XRP markets report five/six years ago. He laments the scale of FUD.
“Some of the stuff I see said, in contrast, where even talking about this openly –how much XRP we have sold to customers, how much is repurchased, we put it all out there.”
And of course, according to Brad, none of this is happening because Ripple is being forced into being transparent by regulatory pressures. It’s simply because Brad thinks that’s the right way to run a business.
But Dixon isn’t giving up. “What percentage of the revenue is XRP sales?”
Brad admits it’s “a significant percentage” but cautions in the exact same breath that he doesn’t know if Ripple has ever “publicly broken that out.”
He continues: “The point I would make, just because the nature of the question, is we repurchase the vast majority of XRP so we are very long-term bullish on XRP. This is not a “hey let’s sell as much XRP as fast as we can. It’s almost you know the opposite.”
Brad doesn’t seem to view the lack of disclosure about how much of Ripple’s revenue is made up of XRP sales as indicative of non-transparency.
Dixon continues to probe: “But repurchasing, what’s the purpose of that because wouldn’t that cause some market manipulation issues?”
A now very hot under-the-collar Brad tries to deflect: “No, well, I mean I guess… I don’t know [LAUGHS]…. the conversation has gone from ‘hey how do we make the industry more healthy’ to ‘you know, could that be market manipulation?’ I’m literally calling in to be totally transparent about exactly what we’re doing. Everything I just said we’ve been public about it. It’s in our XRP markets report.”
Brad stresses all the info the market needs is in the market reports, and, you know what, he wasn’t really expecting to be probed on a Twitter spaces.
“Frankly, it was Sunday morning. I was paying attention to Twitter, and, it’s like, I’ll listen in.”
Some disjointed comments follow about the importance of transparency being everyone’s friend. And that transparency has been at the core of blockchain technologies and that there have been a lot of companies that have acted “not consistent with that”.
Finally, the Dixon asks Brad what advice he would give companies that have large token value on their balance sheet; how should they manage those tokens?
Brad sticks to the same message: be transparent. He name-drops a panel he was on with Joe Lubin, the ConsenSys founder, at the World Economic Forum a few years ago. The latter was “going after him” with some of the same questions. But Brad says he cleverly asked him “how much Eth does consensus own or sell?” and, guess what, he says he wouldn’t answer either.
“I would challenge the whole industry just to be more transparent,” he concludes.
Which, we guess, is pretty much everything you need to know.
In the world of self-floated token finance, everything is a mega bluff and the only understanding that counts is: “I’ll show you mine, only if you show me yours.”
