- Ripple Prime has become a significant swap-financing provider to leveraged ETF issuers, challenging banks and securities firms in the US market.
- Ripple entered the business through its US$1.25 billion acquisition of Hidden Road, which was subsequently renamed Ripple Prime.
- Meritz Securities has partnered with Ripple to research custody, tokenisation, digital-asset ETFs, stablecoins and other infrastructure in South Korea.
- XRP fell more than 5% to around US$1.42 despite the announcements, broadly tracking weakness across the wider crypto market.
Ripple is pushing deeper into TradFi territory, with leveraged ETF financing in the US and a partnership with Meritz Securities in South Korea.
According to a report in the Wall Street Journal, Ripple Prime has become a significant provider of swap financing to leveraged ETF issuers, a field traditionally dominated by banks and securities firms.
Leveraged ETFs use derivatives such as total-return swaps to amplify the daily move of an underlying stock or index, typically targeting two or three times the daily return.
The WSJ cited Morningstar Direct data showing that 593 leveraged ETFs have more than US$256 billion (AU$368 billion) in assets under management, including 426 single-stock leveraged funds.
Ripple entered the business through its US$1.25 billion (AU$1.79 billion) acquisition of Hidden Road, which was later renamed Ripple Prime. The company has also announced a deal with Brevan Howard to provide prime brokerage, clearing and financing services.
Noel Kimmel, president of Ripple Prime, said the unit is “definitely a growing and meaningful part of our business”.
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According to the WSJ, Ripple and other non-bank firms are benefiting from fewer constraints than traditional banks and are gaining ground in the rapidly expanding leveraged ETF market.
Ripple earns financing fees by acting as a swap counterparty while hedging its exposure. The WSJ highlighted one fund whose financing terms with Ripple amounted to roughly 8% annualised at the time, illustrating why the business can be lucrative.
The South Korean Partnership
Meanwhile, in South Korea, Meritz Securities announced on 7 October that it had signed a strategic partnership with Ripple six days earlier at its Seoul headquarters.
The agreement includes research into custody and tokenisation infrastructure in South Korea.
Meritz Securities is reportedly exploring “spot exchange-traded funds for digital assets, fractional investment products, security token offerings, digital asset trading platforms and won-denominated stablecoins”, according to the Seoul Economic Daily.
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The price of XRP hasn’t responded favourably to the news. The fifth-largest crypto asset is down more than 5% on the daily chart, broadly in line with the wider crypto market, whose total market capitalisation fell 2.75%.
At the time of writing, XRP is trading at US$1.42 (AU$2.04), according to data from CoinMarketCap.
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