Ripple has closed a $500 million funding round that has reshaped its financial structure and highlighted the market's continued linkage of the company's valuation to XRP. The investors participating in this round included Citadel, Fortress, Marshall Wace, Brevan Howard, Galaxy Digital, and Pantera Capital. These funds did not make a simple bet on Ripple's future growth; instead, they negotiated terms designed to protect their returns, even if the company does not meet its projections.
How the New Deal Works
The new investors have received a share package that guarantees them a 10% annual return for a period of three to four years. Ripple is obligated to buy back these shares if the funds decide to exercise this option. Should the buyback occur earlier, or if Ripple forces an exit, the cost increases to a 25% annual return. This commitment could result in obligations exceeding $700 million over four years. Consequently, Ripple must set aside capital, meticulously plan its future cash flows, and evaluate new funding sources before making any significant moves.
The participating funds estimated that approximately 90% of Ripple's net asset value is derived from XRP. In July, the company held a treasury valued at $124 billion in tokens. Following a recent market downturn, this figure has decreased to roughly $83.3 billion. XRP has experienced a decline of about 16% in its value since late October and has fallen by more than 40% from its peak in July.
Ripple Diversifies Beyond XRP
Ripple is actively working to reduce its reliance on XRP by pursuing acquisitions aimed at expanding its business operations beyond the cryptocurrency. The company's $1.25 billion acquisition of Hidden Road and its $1 billion acquisition of GTreasury are strategic moves to strengthen its position in prime brokerage services and treasury management. This expansion complements an ongoing share-buyback program, which has already accounted for more than 25% of the company's outstanding shares. Ripple is currently not pursuing an IPO and is prioritizing the establishment of a robust balance sheet capable of absorbing its future financial obligations.
The cryptocurrency market has witnessed a year characterized by substantial capital inflows and significant volatility. This environment has facilitated deals that offer strong protections for large investors, compelling companies like Ripple to carefully balance their growth strategies, acquisition plans, and financial commitments.