A report by media outlet Axios claims that an unknown startup named Valor Foundation is attempting to launch a hostile takeover of the cryptocurrency XRP. This would be the first hostile takeover attempt in the cryptocurrency space.
Valor’s Alleged Takeover Plans
Valor Foundation, a San Francisco-based nonprofit that aims to service unbanked citizens of developing nation using cryptocurrency, is reportedly in “the early stages of attempting a hostile takeover of XRP,” according to leaked information received by Axios.
In 2018, Valor planned to raise $160 million through an initial coin offering (ICO) but failed to convince investors that it could deliver on its mission. Now, according to Axios, the company is instead setting its sights on raising funds to take over XRP to help it succeed in becoming a leading remittances player in emerging markets.
The news outlet explained that Valor plans to raise tens of millions of dollars, which would be used to short XRP to push its price down. This fundraising venture would be conducted using a debt instrument, not a token sale. Then, Valor would fork the XRP code to give each willing XRP holder one Valor token. Finally, Valor would distribute further Valor tokens to its community and incentivize XRP holders to sell their coins for Valor tokens to complete the takeover.
While this scenario sounds somewhat far-fetched, Axios reported that Valor’s founder and CEO, Vishal Harpalani, confirmed to the news outlet that his company is, in fact, working on a hostile takeover of a top ten cryptocurrency. However, he declined to mention which one.
Ripple Executives Deny Takeover Claims
The leadership of Ripple, the VC-backed startup behind the digital currency XRP, responded quickly to discredit the rumors surrounding a possible takeover of XRP.
Brad Garlinghouse, Ripple’s CEO, fired back at Axios business editor, Dan Primack, on Twitter and shared his views on the quality of crypto media. He tweeted:
“[Dan Primack] wants to sell some snake oil [any] buyers out there!? Media have a responsibility to help the industry understand what’s hype vs. substance, not to propagate blatant attempts at market manipulation. When will media coverage of this industry mature?”
Ripple CTO, David Schwartz, tweeted: “This is amusing. A hostile takeover of the XRP Ledger is not technically possible nor does this plan make economic sense.”
XRP Takeover Highly Unlikely
While the idea of “hostile takeovers” in the cryptocurrency space is not completely implausible, it is highly unlikely that a small unknown startup would manage to successfully conduct a hostile takeover of the second largest cryptocurrency in the market.
While an investor with deep pockets could arguably short XRP (or any other altcoin) to drive down its price, it would make little economic sense to attempt to take over a competing cryptocurrency if the funds for such an attempt could instead be used to develop a superior cryptocurrency network. This would likely lead to a more favorable outcome that carries less risk than a hostile takeover attempt.
Moreover, for Valor’s proposed hostile takeover to work, existing XRP holders would need to buy into the idea of the Valor token and its planned ecosystem and simultaneously reject XRP. That is a highly unlikely scenario given XRP and Ripple’s track record and the project’s position as a leading cryptocurrency venture.
Furthermore, the 100+ companies already using Ripple’s technology, some of which also use XRP, would have to change their minds about the adoption of the payment network that will, most likely, help them to reduce costs and increase payment efficiency. Again, a highly unlikely scenario.
Finally, from a technological point of view, this takeover attempt of XRP could not be executable, which makes the entire “leak” seem rather suspicious. Whether this leak was an attempt by short sellers to make a “quick buck” or Valor’s way of making a name for itself in the cryptocurrency space is unclear.
Even Axios acknowledges the unreliability of its source, stating:
“We don’t know if some of this information has been leaked to us, either directly or indirectly, by short-sellers who are hoping to drive down the price of XRP. We also don’t know if those involved with Valor have XRP exposure.”
However, the media outlet could have made an effort to garner expert opinions on the possibility and likelihood of this alleged takeover attempt as well as covering the information contained in the apparent leak in a less sensationalist and one-sided manner.
Are Hostile Takeovers of Cryptocurrencies Possible?
While the Valor-XRP story may just be vaporware, hostile takeovers of cryptocurrencies could very well become part of the growing cryptoasset ecosystem going forward.
Bromberg suggests the following hostile takeover scenario:
A company that launched a competing cryptocurrency to an existing project would first need to incentivize miners to mine their token. Next, the company would need to alert existing holders of their target cryptocurrency about the launch of their new network that will be created out of a fork of “their” cryptocurrency and convince them of the benefits of joining its new user base and community. Then, the company would fork the code of its target cryptocurrency and simultaneously create an incentive pool.
The funds in the incentive pool would then be airdropped to holders of the old cryptocurrency as a reward for burning their old tokens. The more old tokens would be burned by a user, the more of the new token they would receive. That way, the more users who join the new network, the more users of the old network are incentivized to follow.
Finally, the company conducting the hostile takeover could sell accumulated holdings of the old cryptocurrency to deliver the final blow to its takeover target.
Hostile takeovers in the cryptomarkets provide an interesting, albeit currently only theoretical, use case of traditional corporate tactics being applied in the decentralized digital economy of tomorrow.