How Ripple profits from your losses

XRP/USD

Key zone: 1.350 - 1.400

Buy: 1.415 (on strong positive fundamentals); target 1.500-1.550; StopLoss 1.380

Sell: 1.330 (on a confirmed breakout of 1.35) ; target 1.200-1.115; StopLoss 1.365

The crypto company is entering the ETF financing market, where funds pay for increased exposure to shares of Nvidia, Sandisk, and other issuers. This mechanism is particularly popular among funds seeking to generate enhanced returns from daily movements in individual stocks or stock indices.

In other words, instead of purchasing additional securities, funds can enter into total return swaps with a broker. The broker provides the necessary market exposure, hedges the risk taken on by purchasing assets or through other transactions, and charges a fee for financing the position.

How Leveraged ETF Financing Works

One example is Tradr 2X Long SNDK Daily — a fund designed to track twice the daily price movement of shares in memory chip manufacturer Sandisk. For swap financing, it pays Ripple the overnight bank financing rate plus 4 percentage points. At current rates, this corresponds to approximately 8% per annum on the amount of swap exposure. This payment is charged separately from the ETF's own management fee.

For Ripple, such transactions generate recurring income from financing institutional positions. However, this activity involves more than just potential profits: the broker must monitor collateral, hedge risks, and account for sharp changes in the value of underlying assets.

The scale of the market makes this business attractive. According to Morningstar Direct, there are 593 leveraged ETFs trading in the U.S., with combined assets exceeding $256 billion. Of these, 426 funds focus on individual stocks.

How Ripple Entered the Banks' Territory

Financing for such strategies has long been provided primarily by banks. However, capital and risk management requirements have limited the capabilities of traditional participants, creating opportunities for nonbank companies. Players operating in this segment include Ripple Prime, Jane Street, and Clear Street.

A reminder:

The acquisition of Hidden Road for $1.25 billion allowed Ripple to move beyond the cryptocurrency market and establish a presence in the institutional financial services segment. Through its Ripple Prime division, the company finances transactions involving leveraged exchange-traded funds. This model opens up a source of fee income that has traditionally been concentrated mainly in the hands of major banks and brokers.

Ripple acquired an established prime brokerage infrastructure, including clearing, financing of investment positions, and processing transactions involving stocks, bonds, currencies, and digital assets.

In August, Ripple launched its Delta One business, offering total return swaps linked to U.S. stocks, stock indices, and digital assets. At the time of the announcement, the company reported regulatory net capital exceeding $1 billion and the completion of a $275 million senior debt issuance to support further expansion.

Another step was the expansion of its agreement with hedge fund Brevan Howard. Under the arrangements, Ripple Prime will provide it with brokerage, clearing, and financing services across multiple asset markets.

Returns With Major Risks

Leveraged ETFs reset their exposure daily, and sharp fluctuations in individual stocks can create risks for financial companies if the fund's assets are insufficient to cover losses.

Strong fluctuations in underlying stocks can rapidly increase collateral requirements. If the fund's assets prove insufficient to cover losses, the financing broker will face the risk of losses.

At the same time, the scale of Ripple's new business cannot yet be fully assessed from public financial reports. The company has not disclosed how much revenue leveraged ETF financing generates or what role XRP and XRP Ledger play in these operations.

And What's the Result?

Ripple is using the infrastructure acquired through Hidden Road to develop its institutional financing business beyond cryptocurrencies. Fees and financing payments allow the company to profit from funds' demand for increased exposure to stocks and indices, without being limited to cryptocurrency market dynamics.

However, the growth of this business will depend on its ability to manage risks, compete with banks and other brokers, and attract institutional clients. For now, the financial potential of this business appears significant, but its actual contribution to Ripple's revenue remains unclear.

So let's act sensibly and avoid unnecessary risks.

Profits to everyone!