Ripple is muscling into Wall Street’s swap financing business for leveraged ETFs, a lucrative corner of finance long dominated by big banks.

How Ripple Is Challenging Banks

The Wall Street Journal reported Wednesday that Ripple has become a real competitor in swap financing for leveraged ETFs, a business banks have run profitably for years, using total return swaps to deliver amplified returns like doubling a stock’s daily move in exchange for a fee.

Morningstar Direct counts 593 leveraged ETFs in the US today, holding more than $256 billion combined, with 426 tracking single stocks.

Ripple entered this market last year by buying Hidden Road, a prime brokerage for crypto hedge funds, for $1.25 billion. 

That unit is now called Ripple Prime, and it landed its biggest client yet Tuesday, agreeing to handle prime brokerage, clearing and financing for hedge fund Brevan Howard.

Ripple Prime President Noel Kimmel called it “a growing and meaningful part” of the company’s business.

Why Nonbank Firms Are Winning These Fees

Banks face stricter risk limits than nonbank firms, and many newer leveraged ETF issuers are startups with no existing bank relationships. 

That gap is letting Ripple, Jane Street and Clear Street take business banks once had locked up, said Baird Strategas chief ETF strategist Todd Sohn.

The arrangement pays off for Ripple, but it carries real risk on both sides:

  • Fee example: Tradr 2X Long SNDK Daily ETF pays Ripple the overnight bank funding rate plus 4 percentage points, about 8% annualized this week, per a regulatory filing
  • Who pays: the cost sits inside the fund’s value, coming out of investor returns
  • The risk: Janus Henderson’s Dan Aronson said a 50%+ single-day stock move could wipe out the fund, leaving Ripple holding the loss

Sohn described the drag bluntly: “It’s like a termite almost, just kind of chips away every day.” 

Benzinga contacted Ripple for comment on the scale of this business but had not received a response by publication time.

Why XRP Is Falling Separately

XRP (CRYPTO: XRP) fell 6% Thursday as the token broke below its 20-day EMA at $1.46, with RSI cratering to 37.59. 

Liquidations hit $30.42 million over 24 hours, nearly all from long positions, while open interest fell 9.88% according to Coinglass.

Meanwhile, XRP ETF inflows flatlined at $0 on October 7 according to SoSoValue, removing a source of buying pressure right as the selloff accelerated.

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