A legal spat is developing between “bankchain” companies R3 and Ripple, with both filing suit against each other on Friday. The dispute apparently stems from a 2016 options deal that would have allowed R3 to purchase 5 billion XRP units at $0.0085 USD each. Today, that total is worth $1 billion.
When the companies signed the deal in September 2016, Ripple’s XRP currency was worth around $0.0058 each. On 15th September that leapt to $0.0083, with the token hitting a peak of $0.0092 in October before declining for the remainder of the year.
The options deal, which had a two-year expiry date, might have seemed sensible to many at the time. However the 2017 crypto-rush has seen speculative investment flood into a number of historically-lackluster digital assets. One of those is XRP, which at press time is worth $0.20.
If R3 were to exercise its options as per the agreement today, they’d have $1 billion USD in XRP for a $42.5 million outlay. If that sounds like a scary amount of value to hand over, there would’ve been some white knuckles in the Ripple office in May 2017, when XRP more than doubled that, hitting $0.42.
Ripple Tried to Cancel XRP Deal
Such was the angst that Ripple tried to unilaterally cancel the agreement in June. It made a series of direct appeals, including a letter from CEO Brad Garlinghouse to Ripple CEO David Rutter. R3, however, rejected the requests.
After both sides failed to find satisfaction, R3 sued Ripple in the Delaware Chancery Court last Friday. Within the day, Ripple responded with a countersuit in California.
In the CA suit, Ripple claimed it terminated the agreement because R3 had not delivered on separate partnership agreements including their “Project Xenon”. Sections of these deals gave Ripple access to R3’s powerful banking network, while R3 helped to promote Ripple’s technology. Ripple is claiming the options deal is tied to “the substantial performance of Project Xenon”.
“Our filing is straightforward — R3 misrepresented their ability and intent to deliver on their commitments,” a Ripple representative said in a statement.
Ripple Fans Question Company’s Judgment
Like so many others, Ripple failed to predict the 2017 crypto asset exuberance. It likely calculated its potential value liability to R3 based on rational projections of XRP demand and growth in its native environment — financial institutions and investors.
But 2017 has been the opposite of rational, making Ripple’s options offer look ridiculously generous. The questions are, why didn’t they have a better contingency plan if a black swan price event occurred? This industry is, after all, notorious for being both volatile and unpredictable.
“Oh man, what kind of contracts have Ripple signed in the past?” posted user iLeeT on the XRPTalk.com forums. Other commenters also questioned the company’s judgment and future business reputation, even with a favorable legal outcome.
Two Companies With Similar Missions
It’s possible Ripple was simply very keen to work with R3 — in particular its network of large financial institutions which then included Goldman Sachs, JPMorgan Chase, and Banco Santander.
Ripple co-founder and executive chairman Chris Larsen had teased about a collaboration as early as May 2016, when he tweeted:
— Chris Larsen (@chrislarsensf) May 19, 2016
When Ripple formally announced a deal in October 2016, it led with the big-name banking network angle. The two companies lined up 12 banks to participate in an XRP-based trial, which included Santander and National Australia Bank (NAB).
Goldman and JPMorgan left R3’s consortium in November 2016 and April 2017. Morgan Stanley, Santander and NAB also left in 2016. At the time, R3 said they simply declined to continue after trial projects completed. Ripple apparently expected otherwise.
The two companies have similar missions, despite different pedigrees and cultures. Both are developing forms of blockchain, distributed ledger and cryptocurrency technology aimed at streamlining transactions and settlements between large corporations. This technology is often informally called “bankchain” by the wider blockchain community.
They are also some of the industry’s most well-funded, each raising around $100 million in venture capital since launching.
What’s your take on the R3/Ripple deal? Let’s hear your thoughts.
Images via R3, Ripple, Jon Southurst, Pixabay