Key takeaways
- XRP-backed securities are financial products linked to the price of XRP, allowing investors to gain exposure to the cryptocurrency market without directly holding XRP.
- XRP-backed securities come in various forms, including XRP ETFs, depository receipts, futures, options and bonds, each offering different ways to invest in XRP.
- Institutions are drawn to XRP-backed securities due to XRP’s potential in cross-border payments, regulatory clarity and diversification from traditional crypto investments.
- The legal status of XRP-backed securities varies by country, with regulatory approval playing a significant role in their adoption and accessibility for investors.
While XRP (XRP) itself has been the subject of debates due to legal battles with the US Securities and Exchange Commission (SEC), institutions are now turning to other means of bringing XRP to mass financial markets. This is where XRP-backed securities come into play.
But why should you care? As an investor, a cryptocurrency fan, or just someone who cares about how digital assets are changing the financial market, these securities may significantly impact the way Ripple features in mainstream finance.
With new developments like Brazil’s first spot XRP ETF approval and startups introducing new institutional products to market, the conversations around XRP-backed securities have only just started.
Let’s dive into what they are and why they matter.
What are XRP-backed securities?
XRP-backed securities are financial products whose value is tied to XRP, the native cryptocurrency of the Ripple network. Think of them like stocks or commodities, except instead of holding gold or company shares, they are linked to the price of XRP. These securities allow investors to gain exposure to XRP and the crypto market without directly buying and storing the cryptocurrency.
There are different types of securities that can provide exposure to XRP.
Types of XRP-backed securities
XRP futures and options
Derivative contracts enable an investor to place a bet on the future value of XRP and can take the form of XRP options or XRP futures. XRP futures allow you to buy or sell XRP at a predetermined price on an expiry date.
On the other hand, XRP options give you the right, but not the obligation, to buy or sell XRP at a predetermined price before the expiry date.
Imagine betting on the future price of coffee beans. If you expect prices to rise, you buy a contract locking in today’s lower price. XRP futures work the same way, letting traders speculate on price movements.
XRP-backed ETFs
One of the best-known types of XRP-backed security is an exchange-traded fund (ETF). An XRP ETF would work similarly to stock market ETFs, funds that track assets like gold, oil or an index such as the S&P 500.
In this case, the fund would hold XRP and issue shares traded on traditional stock exchanges. Investors could buy these shares just like they would buy stocks, making it easy to invest in XRP without having to deal with exchanges or crypto wallets.
XRP depository receipts
Another way to potentially invest in XRP-backed securities in the future will be through depository receipts. These types of securities represent ownership of XRP but are traded on the stock exchanges in other countries. Think of them as tickets giving investors access to XRP but not directly owning it.
Similarly to American depository receipts, which allow US investors to invest in foreign company shares without passing through foreign stock exchanges, an XRP depository receipt could help one invest in XRP-backed securities using traditional money systems in the investor’s country.
XRP bonds and notes
In the future, some financial institutions may issue XRP-backed bonds or structured notes, which would function as debt instruments tied to XRP’s price movements.
In return, they would receive periodic interest payments and repayment of the original amount at maturity, potentially with adjustments based on XRP’s value. Think of an XRP bond as a savings bond, but instead of receiving fixed interest, your gain is based on how XRP performs.
XRP Notes would work as structured financial products that provide exposure to XRP performance, often with customized risk-reward features.
Are XRP-backed securities legal?
The legal standing of XRP-backed securities will depend mostly on two factors: the specific characteristics of the securities themselves and the regulatory environment of the markets in which they are traded.
Remote deposit capture technology, for instance, is offering its XRP depositary receipts solely to accredited institutional investors under an exemption from registration in the US Securities Act of 1933. This means the securities do not need direct SEC approval.
These securities will be cleared by the depository trust company, so there are standard clearing procedures as there are in conventional finance. This brings XRP into a familiar and regulated environment for institutional investors.
However, retail investors’ access to such securities may be limited initially. The majority of these instruments are available to accredited or institutional investors, so regular traders won’t necessarily have access to them at the outset. But with an increasing number of countries — including Brazil — legalizing XRP-based financial products, wider adoption could be seen in the near future.
Why are institutions interested in XRP-backed securities?
Several key reasons drive institutional investment in XRP-backed securities:
- Cross-border payments: XRP has long been positioned as a cheaper and faster means of cross-border payments, making it attractive to banks and financial institutions.
- Regulatory clarity: As XRP gains more legal acceptance, especially after its partial victory in the SEC lawsuit, institutions are more comfortable investing in it.
- Diversification: Institutional investors looking to diversify their crypto asset investment portfolios beyond Ether and Bitcoin may opt for XRP-backed securities.
- Market infrastructure: Institutional investors can invest through remote deposit capture, providing a regulated path to gain access to XRP without the risks of direct cryptocurrency holding.
Could XRP-backed securities influence crypto regulation?
The idea of including XRP in US crypto reserves has become a significant part of an ongoing conversation about the role of digital assets in national financial systems.
While Bitcoin was initially considered the primary candidate for a national reserve due to its perceived stability and fixed supply, its volatility and regulatory concerns led to a broader discussion about a diversified reserve, including assets like XRP.
Additionally, Ripple’s CEO, Brad Garlinghouse, has also been vocal about deviating from a Bitcoin-only reserve, advocating for a multi-asset approach. This stance has sparked criticism from Bitcoin advocates, who argue that Ripple is the “biggest obstacle” to a US Strategic Bitcoin Reserve, citing Ripple’s lobbying efforts and support for central bank digital currencies (CBDCs).
Despite the backlash, Garlinghouse has defended the push for a diversified reserve, claiming that such efforts are increasing the likelihood of a crypto strategic reserve that also includes Bitcoin.
Expanded issuance of XRP-backed securities may induce regulators to establish more defined regulations for crypto-based financial instruments. The SEC lawsuit against Ripple has been creating pressure to have a more structured framework for regulating crypto in general.
While Ripple achieved a partial victory in July 2023, with the court ruling that XRP sales to retail investors didn’t constitute unregistered securities, the SEC filed an appeal in January 2024, challenging this decision. Despite the appeal, investor optimism has surged, driven by Ripple’s partial legal wins and the growing expectation of clearer crypto regulations.
This optimism has contributed to XRP’s rally, with market analysts suggesting that favorable legal outcomes could lead to an influx of institutional investors, bolstering XRP’s position in the market. Widespread adoption of XRP-backed securities could set a precedent for future institutional adoption of other altcoins.
In addition, other countries like Brazil, which recently approved an XRP ETF, are showing that crypto-based securities can exist within a regulatory framework. This could pressure the United States and other nations to rethink their policies regarding digital asset regulation.
Polymarket has projected an 81% chance of XRP ETF approval in 2025, significantly increased from 70% in January 2025. This surge in optimism follows the SEC's acknowledgment of Grayscale’s application, though the final decision will depend on the resolution of the ongoing legal battle between Ripple and the SEC.
Did you know? XRP-backed securities can also be used as collateral in various financial transactions, allowing investors to secure loans or other forms of credit. By utilizing their holdings of XRP-linked products as collateral, investors can be provided with another element of liquidity and flexibility compared with traditional investment techniques.
What’s next for XRP-backed securities?
The success of XRP-backed securities in the future will rely on a variety of factors, starting with the outcome of Ripple’s ongoing court disputes with the SEC, which will set much of the governing law for the asset. Additionally, a surge in demand from institutional investors seeking regulated crypto investment options could play a critical role in driving the adoption of XRP-backed securities.
Matt Hougan, chief investment officer at Bitwise, highlighted a strong demand for spot XRP ETFs. He said XRP would thrive in a low-cost, user-friendly exchange-traded product (ETP). Hougan pointed out that XRP ETFs could attract substantial investments and emphasized that the SEC’s growing openness to XRP ETF filings, a notable shift from past rejections, signals a positive outlook for the asset’s future in financial markets.
A key player in Brazil, Braza Group, is setting the stage for the future of XRP-backed securities by launching a Brazilian real-pegged stablecoin on the XRP Ledger. Marcelo Sacomori, CEO of Braza Group, highlights the stablecoin's potential to revolutionize the Brazilian market and drive broader adoption across South America. Braza plans to launch the stablecoin in early 2025, and by the end of 2025, Braza aims to capture around 30% of the Brazilian market.
The quest for further regulatory approvals in principal markets such as Europe, Asia and Latin America will be instrumental in broadening these securities’ global acceptance and legitimacy. Finally, the expansion of product offerings to cover more than institutional investors, focusing on retail markets, may unlock new growth opportunities and wider acceptance.