Ripple has a problem.
The startup controls the world’s third-largest cryptocurrency, XRP. Banks have signed onto its network and bought equity stakes in its business, which wants to rewire how money moves around the world. And yet when it comes to obtaining a coveted listing for XRP on two of the top U.S. cryptocurrency exchanges, Ripple hasn’t been able to close the deal.
It isn’t for lack of trying. Last year, the San Francisco-based company suggested paying financial incentives to the venues, Gemini and Coinbase, according to four people with direct knowledge of the matter, who asked not to be identified discussing private information.
For all the hype surrounding Ripple and XRP, its absence on markets like Gemini and Coinbase is eye-catching. By dangling money in front of exchanges, Ripple signaled that its future success hinges in part on getting XRP listed on the top trading venues. But there’s a major headwind in that effort: U.S. officials have warned unlicensed exchanges not to list tokens that could be deemed securities. XRP’s control by a single company has fueled speculation it could fall under that designation.
Last year, a Ripple executive asked whether a $1 million cash payment could persuade Gemini to list XRP in the third quarter, according to people familiar with the matter. That followed other attempts by Ripple to get Gemini to add XRP, exploring strategies like paying out rebates and covering related costs, the people said.
During preliminary talks with Coinbase last fall, Ripple said it would be willing to lend the exchange more than $100 million worth of XRP to start letting users trade the asset, according to a person privy to that discussion. Ripple, without putting the proposal in writing, told Coinbase it could pay back the loan in XRP or dollars, the person said. If the exchange had chosen the latter, it could have profited had the tokens become more valuable upon being listed, the person said.
Gemini and Coinbase both declined to pursue the proposals, the people said.
Presented with a description of Ripple’s proposals to the exchanges, company spokeswoman Emmalee Kremer said some of the information was inaccurate but declined to specify which details she was disputing. “Regardless, Ripple has always been transparent about our focus on building and growing a strong XRP ecosystem,” she said. “We want XRP to be the most liquid digital asset possible to enable faster, cheaper global payments.”
Gemini, which was co-founded by Cameron and Tyler Winklevoss, declined to comment. A Coinbase representative declined to discuss specific assets, but referred Bloomberg to the exchange’s listing framework.
It’s not necessarily unusual to pay for a cryptocurrency listing. Costs range from $1 million “for a reasonably regarded token, to $3 million for an opportunity to get quick liquidity,” according to a report from Autonomous Research, which added that the figures are based on conversations among market participants and aren’t exact.
Few things have propelled XRP’s price more in recent months than speculation that the token is set to graduate to a U.S. exchange, which face stricter regulatory purview than markets based in some other parts of the world. A U.S. listing would also cement XRP’s standing among titans of cryptocurrency such as Bitcoin, the most popular and valuable of the bunch.
To its adherents, XRP is a valuable link between the world of banking and digital currencies that comes with the backing of a Silicon Valley technology company. XRP is designed to revolutionize how banks move cash across borders, making transactions faster and cheaper. Ripple uses incentives to entice market makers to buy and sell XRP and periodically sells its digital token to institutional investors, according to its website. While the coin doesn’t represent an ownership stake in Ripple, the concern is the close relationship might still lead regulators to deem XRP a security. Authorities are still clarifying which tokens deserve that designation.
If XRP is classified as a security, it would be removed from the largely unregulated Wild West of cryptocurrencies and become subject to requirements similar to those that govern assets like stocks. So would exchanges that offer it.
Yet, investors aren’t giving up. Based on Ripple’s success in gaining new customers as well as speculation it would be listed in the U.S., XRP shot up more than 14 times in value between early December and early January, according to data compiled by CoinDesk. That was before Coinbase debunked speculation that it had decided to offer XRP on its market. Another surge came on March 5, after CNBC scheduled Ripple Chief Executive Officer Brad Garlinghouse and Coinbase Chief Operating Officer Asiff Hirji to appear on the same program the next day, setting off speculation that they were about to announce a listing.
Paying for a listing could be perfectly legal, given that traditional markets charge such fees, said Jesse Overall, an attorney at Clifford Chance. But things could get complicated if a digital token were later deemed to be an unregistered security, he said. In such a case, both the exchange and issuer could face penalties, he said.
“Listing on an exchange is the integral part of the process of facilitating an unregistered, unlawful, illegal securities issuance to people who are not allowed to buy,” Overall said.
Companies are required to pay for listings on the largest U.S. stock exchanges, but they also must meet and maintain listing requirements. For instance, Nasdaq Inc.’s stock markets can charge annual listing fees ranging from $42,000 to $155,000, according to the company’s rule book.
Gemini and Coinbase limit the cryptocurrencies that trade on their platforms. Gemini customers can only trade Bitcoin and Ether, though the Winklevoss brothers said last month that they want to expand to others such as Bitcoin Cash and Litecoin. Coinbase has Bitcoin, Bitcoin Cash, Ether and Litecoin and reiterated on March 5 that it hasn’t decided whether it will add new coins.
The U.S. Securities and Exchange Commission has said that platforms serving as trading venues for digital assets deemed to be securities will need to register with the agency as a national exchange, or qualify for an exemption. The regulator also subpoenaed firms and individuals behind coin offerings it believes might be breaking the law, a person with direct knowledge of the matter said earlier this year. An SEC spokesman declined to comment on the agency’s view of XRP.
The SEC’s warnings have resonated in the industry. In March, the Winklevoss twins submitted a proposal for a regulatory body to govern digital-currency markets and custodians.
There’s a reason listing fees aren’t as common in crypto as they are on traditional securities platforms, said Dave Weisberger, CEO of CoinRoutes, a cryptocurrency data and order routing company.
“In the equity space, listing fees have always historically been coupled with the notion of regulation,” while digital currencies are relatively unsupervised, he said.
Yet the motive to list is still there: A crypto issuer paying to get their token on an exchange “could make 100 times that payment by selling off those coins when it lists,” Weisberger said.
— With assistance by Benjamin Bain, and Peter Eichenbaum