Ripple settles with estranged founder Jed McCaleb, outlining a metered sale of his XRP holdings

By Michael Carney , written on August 15, 2014

From The News Desk

Ripple Labs and its estranged co-founder Jed McCaleb are back in the news again. McCaleb, who is most widely known as the founder of Mt. Gox, the Magic the Gathering exchange which eventually became the world’s largest bitcoin exchange, made headlines in May when he announced plans to sell all 9 billion XRP (ripple currency units) he received for his early role in the company. Not surprisingly, that announcement lead to a massive decline in the currency’s value and made him persona non grata with the remaining Ripple founders.

Today, the parties reached an agreement to spread that sale out in an orderly fashion over a period of several years, a move that should add stability and restore confidence to the XRP market. The news was first announced in a blog post by the company’s director of communications Monica Long.

XRP is a unique crypto-currency in that it’s not meant to be used in place of fiat currencies to buy goods and services. Rather, XRP are designed to act as a universal intermediary currency to quickly and inexpensively facilitate transactions between disparate fiat currencies (e.g. between Dollars and Yen). The Ripple platform, therefore, is positioned as a global settlements network that may one day replace the system of wire transfers used by traditional banks today.

But XRP are nevertheless valuable and McCaleb’s 9 billion XRP – which represents 9 percent of all XRP ever to be created and more than 100 percent of the 8.2 billion XRP in circulation – holds a theoretical value of $47.7 million at current exchange rates. (They were worth just $24 million at the time of his May announcement, and briefly fell as low as $14 million during the ensuing sell-off). It would be highly unlikely, however, that McCaleb could sell such a large sum of XRP at market rates.

Under today’s agreement with Ripple, McCaleb has the option to sell up to $2.5 million of XRP “off market to a single counterparty vetted by Ripple Labs” at any point in the next four weeks – a transaction that is presumably meant to help fund his future crypto-currency projects. After this point, McCaleb is restricted to selling no more than $10,000 in XRP per week for the first year of the agreement, a sum that represents less than 1 percent of the current selling volume and therefore should not impact market prices significantly.

During the second, third, and fourth years of this agreement, this limit increases to $20,000 XRP per week. Thereafter, McCaleb can sell 750,000 XRP per year in years five and six, 1 billion XRP per year in year seven, and 2 billion XRP per year in years eight and beyond.

A Ripple blog post on the settlement indicates that Ripple co-founder and chief strategy office Arthur Britto previously signed a similar agreement. The company’s third co-founder and current CEO Chris Larsen previously gifted 7 billion XRP to the Ripple Foundation for Financial Innovation, which invests to help the underbanked around the world. The founders were collectively gifted 20 billion XRP, with the remaining 80 billion retained by Ripple for use in funding its operations and seeding global money transfer gateways.

McCaleb and Larsen have a history of disagreement over the direction that Ripple should take as a company, in particular how this XRP allotment should be distributed. It was what led to McCaleb’s departure and was at the root of his decision to sell his XRP holdings in protest. Today’s decision appears to be a positive step for the estranged co-founders and should help ensure that Ripple isn’t torpedoed before it ever has a chance to fulfill its lofty mission of reinventing global money transfer.

Of course, Larsen has to be none too thrilled that since leaving Ripple, McCaleb has launched a direct competitor in Stellar, an open-source payment network launched in partnership with Stripe and former Square and PayPal exec and current Khosla Ventures partner Keith Rabois. This is just the latest entry in what has been a long and circuitous journey for McCaleb in the world of crypto-currencies.

Both Ripple and Stellar face an uphill battle in their mission of reinventing the way money moves around the globe. But with all the systemic and bureaucratic challenges, the last thing either company needs is sabotage from within. There are sure to be a few people breathing easier in Rippleland today.