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RIPPLE Fundamental Asset Overview

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Fundamental Asset Overview

Contents Asset Research

Brief Overview ……………………………………………………………………………………………………………………………. 2

Investable Asset …………………………………………………………………………………………………………………………. 2

Key Metrics …………………………………………………………………………………………………………………………………. 2

Underlying Technology …………………………………………………………………………………………………….…………. 3

Technical Details ……………………………………………………………………………………………………………………..…. 3

Project History ……………………………………………………………………………………………………………………………. 4

Asset Supply ….……………………………………………………………………………………………………………………………. 5

Price History ….……………………………………………………………………………………………………………………………. 6

Trading Volume ….………………………………………………………………………………………………………………………. 7

Industry Growth …………………………………………………………………………………………………………………………. 8

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About …………………………………………………………………………………………………………………………………………. 10

Disclaimer ……..……………………………………………………………………………………………………………………………. 11

- Alex Sunnarborg Founder & CFO – Lawnmower

September 15, 2016

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Asset Research

Brief Overview

Ripple was developed to power the fastest and cheapest payment platform for global value transfer.

The system was designed to enable direct transaction settlement with increased visibility &

transparency in an asset & location agnostic manner. The native asset – XRP – provides additional

liquidity & transactional options to the network as a bridge between assets to reduce cross-border

payment & foreign exchange market inefficiencies.

Investable Asset

The native, underlying asset on the Ripple network is called XRP. The Ripple protocol however gives

users full freedom & flexibility on their choice of asset for holding & transacting on the network (USD,

EUR, Gold, BTC, etc.). As liquidity on some pairs will inherently be smaller than others, XRP functions as a

native, bridge asset (not a redeemable balance) to the network, able to support additional options &

liquidity for exchanging assets. XRP positions itself to “give every currency & asset the smooth

transactional qualities of a singular global currency”. XRP is divisible to 6 decimals places, was created

with the maximum supply on the network, & can be purchased at multiple exchanges1,2.

Key Metrics

Website: ripple.com

Whitepapers: ripple.com/whitepapers-reports

Software: github.com/ripple

Current Price3: $0.0084 – Sep. 15, 2016

All-Time High3: $0.0575 – Dec. 2, 2013

Previous Year High3: $0.0089 – Dec. 10, 2015

Previous Year Low3: $0.0040 – Dec. 2, 2015

Current Supply4: 99.9972 Billion

Supply Limit: 100 Billion

Current / Limit: 99.9972%

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Underlying Technology

Traditional & existing global payment infrastructure is extremely fragmented, antiquated, and inefficient

between financial institutions & regions. Systems, currencies, and networks were created before the

internet existed, and many 3rd party intermediaries joined the space to help address gaps (like cross-

currency liquidity for global payments). Thus, the current environment is plagued with slow fund

settlement time, a lack of transparency, errors, & significant fees – especially as it relates to cross-

border & currency transfers5, 6.

Ripple has created a protocol, distributed global exchange & settlement network, and native asset to

help address these issues for banks of all sizes as well as end consumers, and also incentivize market

makers to provide additional liquidity to the network.

Ripple’s distributed exchange allows direct & cost-effective trading between users & assets. Any party

can post offers to buy or sell assets into a global “order book” denominated in any asset & the Ripple

protocol will automatically find the most efficient path to match trades. Ripple “is built to route each

international transaction to the cheapest FX bid/ask spread available in the network” (the lowest rate

across all currency pairs & order books, and enables settlement within 3 to 7 seconds13, 18, 25.

The protocol governs that non-native (XRP) assets are treated as “redeemable balances” from the

“gateways” the assets are “issued”. The “gateways” can be any financial institution or business looking

to generate additional revenue streams, optimize existing aspects of their business, or create new

opportunities for their customers1.

Gateways are the mechanism for value to move non-native (XRP) assets in & out of the Ripple network

& ledger. “Issuing Gateways” can issue sovereign currencies, precious metals, Blockchain Assets, and

other forms of value as their own redeemeable balances7.

Ripple operates on a distributed ledger which represents the current state & history of the network with

information including timestamps, balances between accounts, and offers in the global “order book” to

users & application developers8.

Technical Details

Ripple’s distributed ledger consists of a chain of timestamped of information (“blocks”) including

balances between accounts, offers to buy & sell assets, and other data.

Transactions on the network result in changes to the ledger. Transactions include payments, changes to

account information, & new offers to buy & sell assets. Each must be signed cryptographically by an

account owner (& be valid amongst additional criteria) to be included in the ledger, else the transaction

may never occur in a validated ledger.

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Transactions on the Ripple network are accepted & processed by “nodes” (distributed servers). Client

applications like mobile & web based “wallets”, “gateways”, and trading platforms help users sign &

send transactions to nodes, which relay them throughout the network to other nodes.

Nodes then iterate through various other nodes’ proposals on potential valid transactions to be included

in the next ledger. Once “consensus” is reached, each node updates their latest ledger to take into

account the new transactions & then relays the resulting state back to the network to confirm

“validity”8.

Rather than relying on proof-of-work, “mining”, & block rewards like Bitcoin, Ripple uses its own

consensus mechanism to maintain network integrity over time. The Ripple Protocol consensus algorithm

governs the structure of reaching & verifying the validity of “consensus”, and is applied “every few

seconds by all nodes in order to maintain the correctness and agreement of the network”9.

Consensus in Ripple uses a unique process for “maintaining correctness and consistency even when a

subset of participants are faulty or malicious” involving distributed “trusted” network subsets8, 9, 13, 19.

Project History

A software developer named Ryan Fugger initially “conceived Ripple in 2004 after working on a ‘local

exchange trading system’ in Vancouver”.

In 2011, Jed McCaleb (“a serial tech entrepreneur and a major figure in the Bitcoin community”, with

projects including eDonkey, Mt. Gox, & Stellar) began working on his own digital payment network &

consensus structure and partnered with Chris Larsen (prior CEO of E-Loan & Prosper) in 2012.

In August 2012, McCaleb & Larsen approached Fugger who had an initial iteration of Ripple running at

RipplePay.com & took the reins to co-found a company called OpenCoin in September 2012 to further

develop Ripple14.

OpenCoin raised $3.1 Million in funding between October 2012 & May 2013 from various investors

including Andreessen Horowitz, Google Ventures & Digital Currency Group15.

In September 2013, the team rebranded from OpenCoin to Ripple Labs. Since, Ripple Labs has raised an

additional $35.5 Million from investors including RRE & Santander15.

The Financial Crimes Enforcement Network (“FinCEN”) fined Ripple Labs $700,000 in May 2015 for

violating Bank Secrecy Act (“BSA”) regulations in 2013 & 201417.

In October 2015, Ripple Labs rebranded to Ripple16.

In 2015 & 2016, Ripple received several awards including “5 Hottest Companies in Fintech” by Fortune20,

the “Best B2B Innovation” award at the PYMNTS Innovation Project 201621, Forbes’ “Fintech 50”22, &

more.

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Currently, Ripple says they are working with “15 of the top 50 banks”, have “30 active integrations”,

“60+ countries accessible”, & “116M exchanges processed” and have offices in San Francisco, New York,

& Sydney23.

Ripple is targeting their technology & solutions at multiple market segments5:

- Large & global banks: to lower operational expenses by improving processing efficiency.

- Small & mid-sized banks: to access additional, competitive liquidity for cross-country & currency

payments.

- Market makers: to access & provide additional liquidity to “diversify & manage global FX risk”

and profit from bid / ask spreads24.

- Individual & business users: to access cheaper & quicker payment services with additional

settlement transparency.

Ripple’s products include Ripple Connect (“a plug-and-play module that processes international

payments for banks”) & Ripple Stream (“for market makers to submit bid/ask offers”)25.

Some examples of live & intended future projects and integrations include remittance services for retail

clients, transferring funds between cross-border branches of the same bank, international corporate

treasury solutions for working capital management, and banks re-packaging international fund

settlement solutions for other regional banks26.

On September 15, 2016, Ripple announced they’d raised a $55M Series B from investors including CME

Ventures, Accenture Technology Ventures, & Standard Chartered Bank15.

Asset Supply

The Ripple ledger was created with 100,000,000,000 XRP - the maximum supply that will ever exist on

the network10, 11.

80% (80,000,000,000 XRP) was initially allocated to Ripple Labs & 20% (20,000,000,000 XRP) went to the

founders10, 11.

Ripple Labs’ XRP is used to fund the company’s operations and sold & given away to the public and

organizations over time10, 11. The founders have also made several XRP donations & sales to the public27, 28.

In order to prevent spam, denial-of-service attacks, & attempts to overload the network, transactions on

the Ripple network include a fee specifying the cost (amount of XRP) for relaying the transaction. The

XRP (transaction cost) is not paid to any party, but rather destroyed – causing a forever decreasing

supply in proportion to the volume of transactions on the network29.

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XRP is currently allocated amongst Ripple Labs, others in the public, and those destroyed in transactions

as follows.

12

Ripple claims their “goal in distributing XRP is to incentivize actions that build trust, utility and liquidity in

the network” & that they will engage in distribution strategies they expect will result in stable or

strengthening exchange rates12.

The exact future distribution plan of XRP is unknown, however Ripple Labs has stated they intend to

“give away over 50 billion XRP”10. Ripple has also stated that “to incentivize early participation of

liquidity providers, Ripple will implement programmatic distribution of XRP to those who use it to offer

better spreads on currency trades and payments.5”

The unknown distribution schedule of XRP along with the large % controlled by Ripple has caused some

debate over the best figure to use for supply in a simple market cap formula (market cap = price *

supply). Currently, some sources will show XRP market caps using the supply owned by both “Ripple” &

“Others”, and some will ignore those XRP owned by Ripple, resulting in dramatic differences.

Price History

In mid-2013, XRP was trading at about $0.005 (≈half a cent). Before year end, XRP was trading north of

$0.05 (≈10x higher).

Owner XRP % of Total

Ripple 64,539,369,999 64.539%

Others 35,457,828,433 35.458%

Destroyed 2,801,568 0.003%

Total 100,000,000,000 100.000%

XRP Allocation

Description Supply Price Market CapRipple + Others 99,997,198,432 $0.0084 $838,565,506

Others 35,457,828,433 $0.0084 $297,345,449

XRP Market Cap

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Early 2014 was marked by a fall to back under $0.01 where it stayed for the majority of the back half of

the year.

XRP spent the final days of 2014 & the first bit of 2015 trading above $0.02 and has since been back

under $0.01, with a large (≈ 40%) jump on the day of the Series B raise announcement (9/15/16).

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Trading Volume

Ripple has grown from negligible trading volume in late 2013 to frequently hitting $1 - $5+ Million daily

trading volumes.

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Industry Growth

Wallets30 GateHub, Bluzelle, Tide, Payroutes

Exchanges Kraken, Poloniex, Bittrex

Gateways7 Bitstamp, Ripple China, eXRP, LakeBTC, The Rock, Ripula, RippleCN

Total daily payment volume on the network has historically averaged around a few Million ($), with

intermittent spikes reaching well north of $10 Million.

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_____________________

1Reference & additional reading: ripple.com/knowledge_center/how-ripple-works

2Reference & additional reading: ripple.com/knowledge_center/math-based-currency-2

3Data source: coincap.io API – daily as of 9/15/2016, current supply implied by market cap / price

4Data source & additional information: ripplecharts.com – as of 9/15/2016, discussed further in “Asset Supply”.

5Reference & additional reading: ripple.com/files/ripple_vision.pdf

6Reference & additional reading: ripple.com/files/xrp_cost_model_paper.pdf

7Reference & additional reading: ripple.com/knowledge_center/gateway-information

8Reference & additional reading: ripple.com/knowledge_center/the-ripple-ledger-consensus-process

9Reference & additional reading: ripple.com/consensus-whitepaper

10Reference & additional reading: wiki.ripple.com/introduction_to_ripple_for_bitcoiners

11Reference & additional reading: wiki.ripple.com/ripple_credits

12Data source: ripple.com/xrp-portal (“as of 9/11/2016, including business development agreements that are still pending”)

13Reference & additional reading: wiki.ripple.com/Consensus_Process

14Reference & additional reading: paymentssource.com/news/technology/disruptor-chris-larsen-returns-with-bitcoin-like-payments-system-

3012580-1.html

15 Data source & additional information: crunchbase.com/organization/ripple-labs

16 Reference & additional reading: ripple.com/insights/a-new-chapter-for-ripple

17 Reference & additional reading: fincen.gov/news_room/nr/pdf/Ripple_Assessment.pdf

18 Reference & additional reading: ripple.com/knowledge_center/reaching-consensus-in-ripple

19 Reference & additional reading: wiki.ripple.com/Unique_Node_List

20 Reference & additional reading: fortune.com/2016/06/27/five-hottest-fintechs

21 Reference & information: innovationproject.com/2016-innovator-awards

22 Reference & information: forbes.com/fintech/2015

23 Reference & information: ripple.com - as of 9/15/2016

24 Reference & additional reading: ripple.com/ecosystem/market-makers

25 Reference & additional reading: ripple.com/technology

26 Reference & additional reading: ripple.com/solutions/cross-currency-settlement

27 Reference & additional reading: coindesk.com/ripple-creator-500000-xrp-donation-ai-research-charity

28 Reference & additional reading: coindesk.com/jed-mccaleb-ripple-labs-strike-deal-avert-9-billion-xrp-sell

29 Reference & additional reading: ripple.com/build/transaction-cost

30 Reference & additional information: ripple.com/knowledge_center/wallet-providers

31 Data Source: ripplecharts.com/#/history

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About

Lawnmower is an investment platform & market research firm for Blockchain Assets. The mobile app is

free to download on both iOS & Android in the United States.

More information can be found at lawnmower.io.

Lawnmower’s Market Research is written by the Founder & CFO – Alex Sunnarborg, who has a

professional background in financial analysis, working in investment banking & wealth management.

To contact the author, please e-mail alex@lawnmower.io

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Disclaimer

Lawnmower’s Market Research is provided for informative purposes only and should not be

misconstrued or interpreted as fact, advice, recommendation, or anything of similar nature.

This research is based on third party public information at the time written and should not be

considered or relied upon as fully accurate, complete, or timely. This report contains heavy

simplifications of complex topics and should not be interpreted as the full picture.

This research is not a solicitation or offer to buy or sell any asset. It does not constitute a

recommendation in any way. Prices, values, and data referred to in this research may change and

fluctuate significantly. Past performance is absolutely no indicator of future performance.