Last week, the 8-k SEC filing from MoneyGram revealed that Ripple has paid a total of $11.3 million — $2.4 million in 3Q and $8.9 million in 4Q — to its partner in order to use its software and XRP cryptocurrency.
As we reported, MoneyGram accounted for these cash flows as revenues in Q3 but then after seeking SEC’s guidance, treating them as “contra expenses”.
MoneyGram also filed a 10-k that further divulged that this compensation that the company categorizes as “market development fees” has been paid by Ripple in the form of XRP. “The Company is compensated by Ripple in XRP for developing and bringing liquidity to foreign exchange markets, facilitated by the ODL platform, and providing a reliable level of foreign exchange trading activity. We refer to this compensation as market development fees.”
In response to the news, Asheesh Birla, SVP of Product at Ripple took to Twitter to clarify that MGI is its strategic partner and they both are building “new infrastructure together.” This he said takes “a ton of work, effort, and resources” which costs money.
Ripple paying companies to use their software and XRP, Birla said isn’t any different from PayPal and Visa using payment network incentives to “boost” their network adoption.
San Francisco-based Ripple’s latest partner Azimo which is using On-Demand Liquidity (ODL) that leverages XRP will also be paid by Ripple.
“(Azimo) will be paid by Ripple, but that the money is to offset the technology investments it must make for its infrastructure,” Azimo CEO Richard Ambrose told Fortune.
Ambrose, however, said that these payments are small compared to the cost savings — Ripple is reportedly saving the company 30% to 50% in cross border transfers.
Birla had also echoed the same thoughts when he said, “ODL reduces their capital costs because of the product’s efficiencies, not because they are receiving any fee on the other side.”
XRP and MGI Shares’ Price Down over 94% from their Peak
Coming back to MoneyGram, if we take a look at the time Ripple invested $50 million in MoneyGram in June 2019, at that time, MGI shares were around $1.40 that surged on the back of the deal. However, MGI’s share price performance has been nearly flat since crashing from their 2006 high of about $290.
Currently, MoneyGram shares are trading at $2.20 while XRP is trading at $0.240, up 6.23% in the past 24 hours.
Ripple Payouts Depend on Company’s Shape & Size & More
Ripple price, however, is still down 94% from its all-time of $3.94. Throughout 2018 and even 2019 the price of the digital asset kept on crashing. Many XRP investors accused Ripple of dumping XRP in the market and crashing the prices.
Ripple obviously vehemently denied this and announced that it will significantly reduce its XRP sales which it has been doing for the past two quarters. The blockchain technology startup books these XRP sales as revenue.
Back in August 2019, FT’s Alphaville recently revealed that in response to if the company pays its partners incentives, Ripple CEO Brad Garlingouse said, “it depends upon the shape and size and type and how high a priority” they are.
“We would not be profitable or cash flow positive [without selling XRP], I think I’ve said that. We have now,” further clarified Garlinghouse.