Cory: I’m Cory Johnson I’m the chief market strategist for Ripple. I’m here at Ripple Headquarters right here in downtown San Francisco with my boss Brad Garlinghouse. This is really weird because I have interviewed you for years when I was a journalist and now I work here.
Brad: I know the tables have turned now you can’t ask the really biting questions.
Cory: Oh I absolutely can and will. No so Ripple, indeed one of the reasons I joined the company is I felt like the company has a really good job of talking about what’s going on sharing what’s happened to the company coming out every quarter like this and talking about what the company’s doing and what’s happening both on the other products side and the XRP side and releasing that information in you know on a very regular basis every 13 weeks. Including doing something like this.
Brad: You know I think transparency particularly in an ecosystem that we are living in both broadly the digital asset level, but also within the XRP ecosystem there’s a lot of participants there’s a lot of activity and I think Ripple is one important player in that ecosystem. It’s important that we’re transparent and important we’re proactive I think in trying to address questions.
Cory: Well I want to get to the quarterly report about XRP sales which comes out and I’ve told people, if you want to know what the company’s doing with this issue of XRP and the ownership, just look every quarter we’ll tell you exactly what we’re doing we’ll lay it out in lots of detail. So I want to get that, but first I’m gonna look when I’ve been on the road for the last now almost two months I find myself having to make this distinction there’s XRP which is this digital asset that that is used and held by many people and then used by many companies to develop. Then there’s the business of Ripple making and selling software what are the highlights from the last quarter for you I would presume they’re almost all on me on the software side and the business side.
Brad: Well first of all highlight is we hired Cory Johnson. Highlight number one.
Cory: That was certainly yeah I think it was for me.
Brad: I will start by saying we had our Q1 All Hands. At the end of each quarter we have in all hands we bring our team in for around the world we had actually in this space and we walked through everything that I kind of had transpired and you know for me it does start with customer traction we were we had an incredible quarter there’s no question about that we signed more than one production contract a week in Q1.
Cory: I can say internally it was really cool to see the emails roll through. I wanted to of course to tell everyone about it, but I couldn’t. It’s just a fascinating thing to watch the momentum build.
Brad: The momentum really has built and I think that’s partly we’re getting better what we do or be better at articulating how our products work, but another one is we’re adding nodes to the network. The value of a network grows by the square of the number of nodes on the network.
Cory: Metcalfe’s law very good look at you.
Brad: Exactly, and you know we definitely saw that increase in Q1 significantly we signed banks like Itau in Brazil, the biggest bank in Brazil. We signed in IndusInd in India. We signed LianLian Pay in China, as just a few examples. Another one that got some attention, but I particularly very excited about is we added the Saudi Arabian Monetary Authority, the Central Bank of Saudi Arabia, as a customer of Ripple’s. They joined Bank of England as a customer’s a central bank engaging with us and that also has really great secondary and tertiary impacts in working with the ecosystem throughout the Middle East.
Cory: It’s more than a stamp of approval they’ve got the connections on the rails there
in the Middle East.
Brad: Right and they see that we’re moving from an analog to digital nature in terms of cross-border payment flows and they obviously leaned in and joined with us. So Q1 was not just adding great talent across the board across engineering in product, but also you know certainly the customer. We’re gonna continue to focus on driving solving real problems for real customers
and I think Ripple remains the leader in real production enterprise use case for blockchain technology.
Cory: Yeah the growth when I started interviewing in February, right you guys told me you had 190 employees. A few weeks later I have the job and I’m on the road with Ron Will our CFO and he’s telling people we’ve got 225 employees. That kind of like 10% growth in employees over the course of a few weeks, it’s fun to see that.
Brad: Well when you sign as many production contracts in Q1 the thing I start to get concerned about is making sure that we continue to scale the organization to serve those customers and deploy them and engage them and make sure they have a great experience. At the end of the day we’re gonna measure success by volume. We’re gonna make it and that is gonna indicate
how happy those customers are. We are solving that real problem reducing friction and increasing speed and reducing cost for the cross-border payments problem.
Cory: Well I think that’s also one of the issues too we talked about. Which corridors are so important for this business and which banks are so important. I think I’ve started to figure out that I that we might make a bigger difference for smaller banks that don’t want to be up in commerce or in corridors, maybe not the corridors we think about sitting here in a major city in the US, but the corridors where it’s really expensive and really slow even worse than it is say US to Mexico.
Brad: There’s no question and I think you know some people shudder and think about ok well
wait a minute how do some of the big banks think about this. Look some of the largest banks in the world are leaning in a very big way both in what we’re doing with xCurrent, certainly what we’re doing at the rulebook which is something that we’re you know the process of finalizing also.
Cory: Right so we’re talking xCurrent, which essentially is a replacement for SWIFT messaging doesn’t necessarily use XRP in transactions, probably doesn’t for most cases. But xRapid introduced fairly recently how is that going where is it going what’s working.
Brad: Yeah it’s an important distinction and I think one of things we did a better job in Q1 is we were even more transparent and publishing to the world hey here’s what xCurrent is here’s how xCurrent works. That works if you have a bilateral relationship between two banks and there’s pre-funding what’s called nostro.
Cory: Banks are already working together.
Brad: That’s correct.
Cory: They’re already using the relationships that they’ve established.
Brad: There is already liquidity on both sides, but what happens is some of those financial
institutions would say to us, well wait that works great for my existing relationships what about if I want to settle into a in a currency that I don’t have a relationship. xRapid solves that problem for liquidity. We entered into beta with that product late Q3 we signed our first pilot customer in Q4, which from my point of view to launch a product in beta and sign a customer that quickly was heroic.Cory: Especially in banking.
Brad: Especially in banking.
Cory: Where things aren’t known to move fast I don’t know if you’ve been to a bank.
Brad: Yes. We signed and have announced six additional pilot customers on xRapid in Q1 including the Western Unions of the world the Cambridge FXs. So I think huge progress and you know I think we certainly will move from beta into production with xRapid this year. So xRapid starts to take, what we see is people starting to use it.
Cory: I think also you were just talking to some people earlier. I caught some of the conversation and there was this notion about how banks are pulling out of the places where they’ve got currency pairs. They’re pulling out of places where they’ve already got corridors, so that business, even as we are going into it it is shrinking.
Brad: You know it’s really kind of surprising, global commerce, global transactions continue to increase at you know a nice clip on a year-on-year basis. Correspondent banking, the nature of how cross-border transactions occur, the number of correspondent banking relationships has decreased by about fifty percent over the last ten years. That’s kind of fascinating. But so you ask so why is that happening and it’s because the cost of supporting those correspondent banking relationships is significant. You’re parking capital, you have dormant capital sitting over there you have compliance costs, particularly after some regulatory changes associated with something called Basel three which I won’t go into today.
Cory: Well it’s not that complicated Basel three.
Brad: You’re smarter than I am.
Cory: Well no, banks had to have a lot of money in their balance sheet. And wherever they had it counted before Basel three. After Basel three wherever they had it it didn’t count if it was sitting waiting for a transaction to happen across borders, then it no longer counted as an asset towards their their reserve requirements.
Brad: That’s exactly right. You said it brilliantly.
Cory: It’s not that complicated, but that’s a big deal because suddenly the banks may have had some benefit of being in the corridor, in the in the cross-border payment business.
Brad: Right the cost of supporting that corridor went up as with the changes in Basel three. What xRapid allows you to do is to still be enable payments into a country without being in
that country. That may sound kind of you know crazy but that’s effectively what it’s doing and we’ve had banks around the world financial institutions and payments providers have leaned in and already started using as a pilot xRapid. I’m optimistic that if you’re solving a real problem for those customers it’s at a lower price and a better outcome that you’re gonna continue to see many financial solutions lean in.
Cory: And just for clarity xCurrent does not require the use of XRP, but xRapid does.
Brad: That’s correct.
Cory: So there have also been some interesting things. I thought the Santander announcement of a consumer facing product using xCurrent is really interesting.
Brad: Yeah so you know Santander has been one of our earliest customers they’ve been a fabulous partner all the way up to the chairwoman of Santander. They’ve been advocates of what we’re doing and they have been more and more public about some of the things they’re doing at their analyst day not too long ago. They talked very publicly about the number of corridors they wanted to be live in with Ripple’s technology this calendar year. This Q1 they publicly started talking more about One Pay FX and this is a consumer facing product that allows real-time payments across pounds to dollars pounds to euros euros to pounds etc. Originally they had launched that I think last summer intra-Santander for their employees.
Cory: Employees, still a big deal.
Brad: And this is now being launched across a very large, I think they have a hundred forty four million customers deposit accounts.
Cory: I don’t think people understand when they use these interesting services like TransferWise, or Zelle, or PayPal, or Venmo while it’s a fancy interface on the front end it’s still the old jalopy in the back end that those companies are having to deal with. But it’s still moving money really slowly in the back end, or with a higher cost.
Brad: It’s an important point. Sometimes when I’m at various conferences it’s interesting to me that a lot of the innovation we talk about in payments is really just happening it is a very very application layer. It’s constrained by everything underneath and you know from its inception Ripple has been focused on how do we reset the fundamental rail. How do we enable innovation throughout the payments experience by changing the nature of payments flow at the infrastructure level. That’s partly through things like xCurrent, messaging, or is partly through things like xRapid. And we’ve talked a little publicly about a product we have called xVia which is effectively a API wrapper to allow access to those first two.
Cory: When I talk about that when I’m on the road is is how or what I’m here in San Francisco is is that it’s sort of like if you’re if you’re a corporation and you you’re lucky enough to have a bank that’s dealing with xCurrent and maybe a deal with xRapid and moving money really quickly how do you access that if you’re if you’re sitting in Amazon and you’ve got 250 300 engineers who are full-time writing API is to deal with all the payment problems and all the banks have got all over the world maybe this can reduce that cost for them and give them one single interface.
Brad: That is absolutely the vision and to extent that companies can write to one API that allows them and a payment interface to many many currencies around the world many many payment networks and we talked about in an oil company that has truck drivers in Nigeria that they don’t have a bank account they want to be paid out on M-Pesa. Right. How does a bank enable that payment? What’s in some ways from an a kind of internet technologies point of view well that’s just an interoperability question in today’s payment infrastructure that’s actually hard to do.
Cory: Right, let me paraphrase that. You could send a text message of that tech truck driver in a second. You can send him an email with the information about the money they were trying to pay him. But he’s still gotta wait you know at least a week.
Brad: There’s a lot of fees in there as well. Particularly if it’s a lower value payment a lot of it gets eaten up with fees which isn’t great.
Cory: So let’s talk about XRP a little bit. The company’s gotten a lot of attention the space has got a lot of attention because of the huge run-up in at the end of December and into January. During the first quarter however there was about a 70% meltdown across all of the entire space. What do you make of that and what does that tell us about the industry?
Brad: Well the first thing I would say is the industry is still nascent. I have said publicly I think there continues to be a need for a maturation process and the whole industry is going to mature. I think we should expect there to continue to be a lot of volatility in the digital asset market broadly. Certainly we saw that in the XRP market as you pointed out. The whole industry the whole category was down roughly 70% and XRP was down about 70% also.
Cory: Even as you pointed out we signed more deals than ever before, one can argue that XRP had one of the worst quarters ever maybe the worst quarter ever. Probably yeah. And yet Ripple had one of the best quarters ever.
Brad: For sure well we definitely had our best quarter ever. I think it speaks to you know it is early days and there continues to be misinformation. There continues to be angst about hey what is the regulatory framework look like on a global basis. I think Ripple has been relatively unique in the whole ecosystem of saying, look we’re gonna lean in and we’re work with regulators, we’re gonna work with governments around the world and certainly I spent a lot of time in Q1 doing exactly that. And I think it’s important to educate explain you know that there’s still a lot of misinformation out there at a lot of levels.
Cory: I was at a conference in Chicago on Monday and every panel someone brought up the question or had to deal with a question about whether a whatever crypto whatever is a security and you’re getting the question like crazy as am I. What’s your notion of that?
Brad: I thought you were going to ask easy questions today.
Cory: What made you think anything was changing here just because I’m working here now.
Brad: Look first of all I think this is a really important question. It’s important that it’s discussed and I think it’s also important realized at the end of the day. This is going to be decided by the SEC not by pundits, not by academics, it’s going to be decided by the SEC and I think that’s important. I think what you’re seeing is an appropriate conversation because a lot of the activity in this space these are ICOs where the token has no utility and I think you’re going to find that the vast, vast, vast, vast majority of them are in fact going to be deemed securities. For me nothing has really changed and that I think it’s clear that XRP should not be viewed as a security and there’s three really important reasons: the first is it’s not a share of Ripple there’s a company called Ripple and there is an ecosystem around XRP and an open source technology called XRP and when you buy XRP it doesn’t give you shares or dividends or access to profits of Ripple the company.
Cory: Well and lots of people developing on the XRP Ledger lots of other companies, I mean Michael Arrington is running this also sorry didn’t mean to jump like this. Michael Arrington is developing this entire fund of XRP investments to help other companies develop on this technology.
Brad: That’s exactly right. As are others. So if the first point is around it’s not a share in Ripple the second point is that the XRP ecosystem, the XRP Ledger is an open source free decentralized technology that exists independent of Ripple. If Ripple the company were to go away tomorrow the XRP ledger would continue to operate and continue to exist.
Cory: We’re not going away tomorrow?
Brad: No we just hired you everything is going to be great.
Cory: I’ve got kids to feed.
Brad: So I think it’s an important distinction around the independence. The third and as I referenced around some of these ICOs is, there’s a real utility in the XRP token. And you know I think to the extent it’s solving a real problem at scale and I think again we demonstrated it certainly in our usage of the XRP Ledger referenced and I think you are as you referenced you are seeing more companies take advantage of the XRP ledger and the reason is the XRP Ledger is about a thousand times cheaper per transaction than Bitcoin. It’s about a thousand times faster per transaction than Bitcoin. So I think you’re seeing other companies build other capabilities on top of the XRP Ledger. You’re going to continue to see that and I think you
know we want to see you know the whole ecosystem thrive.
Cory: I saw John Burbank last week of a different conference in New York. You know John?
Brad: I do.
Cory: Big Warriors fan. Warriors a partial owner there. And John he had this really interesting notion that I’ve been thinking about which is that the way a lot of people began to think about crypto whatever Bitcoin let’s say or XRP or ether or you know fill in the blank was through bombastic people on TV say me, reporting up the same kind of charts that we’ve always used on the same network using some of the same words that they’ve used to describe equities rising and so that on some level. Maybe even unconsciously people start to think about this price graph as if it’s a security, or as if it’s an equity even and that when John says at least when I look at it I see an adoption curve. I see the adoption of radio or TCP/IP or something like that that it that is hard to get your head around something that does have a price but it’s really about technological adoption. It isn’t tied to earnings growth and isn’t tied to how many sales people you can put on the street and then it has a different notion there and so that that these seemingly unsupportable rises in percentage gains value is really tied to adoption not tied to generate earnings power.
Brad: Yeah it goes to the point like this is an important conversation and I think there’s some very smart people at the SEC. Obviously the CFTC has looked at this the IRS has looked at this, all coming with different answers. I think it’s an important conversation and I think yeah we’re gonna continue to have it. I think you know smart thoughtful people are going to come out and I think it’s should be clear that XRP is not a security.
Cory: Yeah so XRP Markets Report out today. Yes. Again I told people when I was thinking about taking this job was one of things that really like to see was this sort of level of disclosure. What did the company do in the first quarter with so the company sits on about sixty-one billion XRP?
Brad: Plus or minus, yes.
Cory: What happened with that in the first quarter?
Brad: So this is the fifth time, fifth quarter consecutively we’ve done these XRP Markets Reports. And again as you pointed out it’s really a goal to be as transparent as possible. We are one important player in the XRP ecosystem and we want other participants in the XRP ecosystem to rest assure that we’re acting in the best interest of the whole ecosystem. You know what we we shared today showed that we did just under 10 basis points of daily market activity in terms of our sales into the market and that’s actually a decrease from previous quarters. We want to continue to be one of the very healthy stewards of developing the whole ecosystem.
Cory: So at less than one tenth of 1%. So the notion that we were affecting the company’s sales of XRP were affecting the price, you never really know but…
Brad: I think it’s clear no one person can affect the XRP markets directly. I think it is as we said it’s an open source decentralized technology. Ripple can’t control that I’m not aware of anyone can control that and I think you know we want to make sure that as one participant our activity is transparent that people are aware of how we’re thinking about and but it’s our view of here’s how we think the whole market behaved and acted and you know some of that is even beyond just the XRP market it’s also the digital asset market overall.
Cory: I also when I think of it I also think that by having a little more XRP into the system trading it does create opportunities for market makers to make money and we know they’re making a lot of money as market makers, but also it does increase liquidity in those places where we want people to be able to do business or develop on that software or whatever.
Brad: Liquidity is a key measure you know volume liquidity are key measures of the health of the overall ecosystem. All of the participants in the ecosystem benefit from that liquidity.
Cory: And so to that I guess we’re doing some things as a company to try to help accelerate that liquidity the markets where we I suppose we want to be in every market but certainly markets where we’re doing business.
Brad: For sure, we do a number of incentives that you know that we’ve been you know proactive in advertising we announced the program in Q4 actually called the RippleNet Accelerator Program and this is where we’re using frankly dollars as well as XRP to incentivize the adoption and the usage of these technologies. I actually think about it when I moved you know to Silicon Valley you know 21 years ago I think it was similar to a company you and I both know PayPal. You know I remember signing for PayPal I got a free $20. You know PayPal was driving these networks effects.
Cory: It started off as $10 they raised it to $20 when they were slowing down.
Brad: And then it went down to $5 I think as I recall.
Cory: I know why because they were losing money.
Brad: Well so we view this as how do we drive network effects and you know using incentives as part of those network effects even Visa in the earliest days of developing the Visa network used various incentives to drive those same behaviors. And so we’re really borrowing a page from people that came way before us and understanding how networks evolve and develop and using incentives as part of that makes it ton of sense to us.
Cory: If only diners club its thought of the same thing. So diners club did not hire Snoop. But you were going to help arrange for me to have a little reunion. Do you know about my history Snoop Dogg? First tell me why why am I mentioning Snoop.
Brad: Well so we are hosting you know as we’ve talked about there’s a lot of participants in the XRP ecosystem and so we’re hosting an XRP community night. This is for you know whether it’s wallet providers, exchanges, market makers, but everyone who’s in the ecosystem we frankly want to celebrate it’s been a tremendous year in many many ways and so we’re hosting an event as part of Blockchain Week in New York City and we decided to bring on some entertainment and at the event we’re hosting called XRP Community Night, Snoop Dogg is the
Cory: So Snoop Dogg, before I did this startup and before I did some media startups and say The Street.com. I did a couple magazines and one of them was Vibe Magazine with Quincy Jones and this young 19 year old rapper we put him on the covers on Dr. Dre’s new record, named Snoop Dogg. His name was Snoop Dogg and I had a big story in that issue.
Brad: I’m sure he remembers you.
Cory: I’m sure he can’t forget it and then in the first issue of Slam Magazine, which I also helped start we did a thing of fact-checking the things Snoop Dogg says about his basketball career as a high school player. He didn’t do all the things he said as a basketball player. We can discuss it with him in a few weeks. The last sort of aside from the business that we do, there was this DonorsChoose thing over the last quarter that I thought was really really cool.
Brad: Yeah this was a powerful day and I think for Ripple employees and really I think everyone around the community it was a prideful day we decided to make a donation to an organization that I really can’t say enough good things about called DonorsChoose. DonorsChoose is an organization started by just an amazing CEO named Charles Best who recognized that the public school teachers were spending a lot of their own money to fund various projects in the classroom. So the the DonorsChoose website allows people to fund specific projects in your community maybe at your school.
Brad: Well I went to Topeka High School and certainly there are projects on there from Topeka High and we decided to fund every project in the entire United States and you know it was a
privilege it was an honor you know Ripple has…
Cory: And these are teachers who don’t have enough chalk for the classroom or teachers who want to do something take their kids on a field trip to the local museum, but can’t get them to or the school district won’t pay for it.
Brad: Yeah I just think Ripple is incredibly privileged to be in a position we can give back and I think DonorsChoose is a organization that is worthy of not just our generosity, but everyone’s it’s an incredible organization.
Cory: So in a little town in upstate New York where I grew up for the most part there was a teacher who rewards students who are doing well at reading and gives them a special chair to sit in. She wanted to buy another chair for these kids. And so I got this really nice email from her saying I was able to get this chair for my kids and it’s so great to help them read with this special chair. It’s those little things that the better teachers, the great teachers want to do, but don’t have the money for. I thought it was super cool school Stephen Colbert announced it. He’s on the board of DonorsChoose?
Brad: That’s correct, yeah he’s been a longtime advocate of the program.
Cory: Oh so I just want to say the thing again I get tired of saying it on the road, the difference between XRP and Ripple is what?
Brad: XRP is, the XRP Ledger is an open source decentralized technology. Ripple is one of the
companies in the XRP ecosystem that is building on top of that technology. To be honest it’s frustrating to me I continue to see journalists that I think conflate the two in many cases when they know there is a difference. They know it adds to the confusion and it’s clear that they are separate. They are distinct and we will continue to make those points. And I think you’ll see more and more companies that are investing and building on top of the XRP Ledger which will make it clear. But you know there’s work to be done there and we’ll keep making those points.
Cory: I’ve said to you before when I’ve interviewed over the course of last call it 15 years thanks
for having me, but in this case I mean it. I appreciate it every other week.
Brad: Absolutely, I think it’s important we do these on a regular basis. There’s a lot of misinformation out there we’ll keep trying to be proactive and clarifying and educating how Ripple is doing.
Cory: So there’s your quarterly QA, Brad Garlinghouse and Cory Johnson, thanks for watching us.
Brad: Thank you.