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Is Ripple’s XRP escrow the ‘biggest sin’? – CTO Schwartz takes a stand

  • 3 min read
  • XRP
  • According to Ripple CTO David Schwartz, the escrow was the only viable option for the stash of XRP.
  • The option of “giveaways” had become impossible for Ripple for tax reasons in 2011.

Ripple’s Chief Technology Officer (CTO) David Schwartz recently spoke out for the first time on the issue of the SEC’s lawsuit against Ripple Labs, citing the predicament the company found itself in back in 2011. Schwartz’s statements came in response to a crypto enthusiast on Twitter who stated that Ripple’s “biggest sin” was the way the company manages its XRP holdings.

The total amount of XRP in Ripple’s escrow account is known to be more than half of its total supply of XRP. All things considered, Schwartz said, Ripple faced the dilemma that “giveaways” were not possible shortly after launch:

What do you think we should have done? As soon as there was a market price, giveaways stopped working. At first, we were giving it away. Everyone who wanted it was using it. But once it had a market price, giveaways were just gamed by people who immediately sold, and they caused huge collateral damage.

Ripple did a good job, but not a perfect one

Moreover, Schwartz noted that Ripple’s approach to distributing XRP and locking it into an escrow was the “ethically” the best possible solution.

Honestly, @Ripple‘s approach to distribution & easing the anxiety of $XRP adopters by locking Ripple’s chunk in escrow is what told me the company is ethically responsible with the influence your collective holding represents within the total market share.

It is funny that something that seemed so easy in 2011 turned out to be a nearly impossible task. The failure of giveaways, the tax complications, and simply the lack of good options caught me, at least, completely by surprise.

When asked if Ripple should have put its XRP into the development of the XRP ledger, Schwartz said the risks of that move were impossible to assess at the time. The company had no idea in 2011 what it should have used the huge amount of XRP for. “You’re imagining we somehow commit to unchangeable rules very early, taking the risk we guess wrong,” Schwartz stated.

As for whether Ripple could have come up with a better solution, and whether he felt good about the decision to go with the current escrow solution, Schwartz said he thinks Ripple did a good, but not perfect job:

I think we faced some unprecedented challenges and did a good job overall. Not perfect. I don’t think making big irrevocable commitments earlier would be helped and it definitely didn’t seem prudent at the time.

The biggest problem was that we didn’t want to hold XRP forever, but giving it away became impossible. It was a bizarre challenge. Lock ups don’t work too well either.

Responding to an XRP enthusiast who stated that Ripple can defend all the SEC’s accusations and prove them wrong, Schwartz concluded:

Early next week, I’ll run what I’d like to say about this specifically by our legal team, but I suspect they’ll tell me that it will have to wait until we file our formal response. Being muzzled sucks, it’s what I hate most about lawsuits.

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