In a recent fireside interview on CNBC’s Tech Transformers at Davos, Ripple CEO Brad Garlinghouse revealed that the blockchain payments company had exposure to FTX.
Garlinghouse disclosed that the now-bankrupt cryptocurrency exchange received a $10 million XRP lease from Ripple.
“… we did have some exposure to FTX,” the Ripple chief said. “I think … we’ve publicly shared before there’s around just over $10 million of XRP we had leased to FTX that they use for various things on FTX… I’m hopeful that through the bankruptcy process, we get some or all of it back but uh it’s not too consequential to the business.”
Predictably, Garlinghouse’s claims have drawn criticism, especially after financial author and coach Linda P. Jones questioned the legitimacy of the deal.
However, as per its quarterly reports, Ripple often grants short-term XRP leases to market makers and users from XRP intended for sales. These leases are typically returned to Ripple. According to Ripple’s most recent quarterly report, the total number of outstanding leases as of Q3 2022 was 91.1 million XRP. What safeguards are in place if a counterparty fails to repay leased XRP is unknown.
The CEO of Ripple claimed that in light of Sam Bankman-Fried’s alleged fraud, it is uncertain what the company will receive in return from the lease. Garlinghouse asserted that while other businesses had excessive exposure, Ripple’s XRP lease accounted for only 1% of its liquid assets. The CEO stated that he hopes Ripple will recover part or all of that money via the bankruptcy procedures, adding that he would prefer not to lose that money. Nevertheless, he claims it is not a loss that hurts the company.
“And for us… that I think represented about 1% of liquid assets,” Garlinghouse said. “I would rather not lose that money. And I’m hopeful that through the bankruptcy process, we get some or all of it back, but it’s not too consequential to the business.”
Garlinghouse supports his assertion that Ripple had a robust balance sheet by pointing out the company’s ongoing hiring of new employees as its clientele grows.
Ripple Interest In FTX Assets
It is important to note that, according to an article from The Times, the Ripple Chief has previously revealed an interest in acquiring FTX assets, notably investments in institutional-facing firms. Notably, Garlinghouse made this statement when he disclosed that he had spoken with SBF a few days before the exchange declared bankruptcy. The CEO of the blockchain company revealed that he had indicated a desire to offer the exchange liquidity in exchange for a share in companies that would be advantageous to it.
In light of the bankruptcy proceedings, any such acquisition would now be more challenging, although he acknowledged that the firm is still investigating it.
FTX’s Stunning Collapse
After a bank run in November of last year revealed an estimated $8 billion hole in its balance sheet, FTX and around 130 of its subsidiaries filed for bankruptcy protection. Within a day, the company’s value dropped from nearly $32 billion to $1.
The US Securities and Exchange Commission has filed a civil case against former FTX CEO SBF, accusing him of multi-year fraud that included routinely diverting customer funds for personal use and investments. Aside from civil lawsuits from the Securities and Exchange Commission and the Commodities Futures Trading Commission, the former crypto billionaire is being sued on approximately 8 counts of fraud in the US Southern District of New York.
SBF is out on bail with a controversial $250 million bond as collateral. He recently pleaded “not guilty” to the accusations, which carry a maximum sentence of more than 100 years in jail if found guilty on all charges.