Moneygram International announced on Monday that it has suspended trading on Ripple's on-demand liquidity (ODL) platform, citing the ongoing litigation between Ripple Labs and the U.S. Securities and Exchange Commission (SEC). The announcement came as part of the company's fourth-quarter and full-year 2020 earnings report, marking a dramatic shift in a partnership that began in June 2019 and delivered significant financial benefits.
The Financial Significance of the Ripple-Moneygram Deal
The partnership originally enabled Moneygram to use Ripple's blockchain-based foreign exchange platform (ODL) for settlement in four currency pairs. The platform relies on the XRP cryptocurrency as a bridge asset, and Ripple subsidized Moneygram's usage through market development fees. For the year 2020, Moneygram recorded a net benefit of $50.2 million from Ripple market development fees, partially offset by $11.9 million in transaction and trading expenses. In the first quarter of 2020 alone, the net benefit was $12.1 million, while Q4 contributed $8.5 million net on $9.2 million in gross fees.
This revenue stream was significant for Moneygram, which reported total revenue of $1.217 billion for 2020 and money transfer revenue of $1.105 billion. The fees helped the company improve its bottom line during a period of operational challenges.
SEC Lawsuit Allegations
The SEC filed a lawsuit in December 2020 against Ripple Labs Inc., CEO Brad Garlinghouse, and co-founder Christian Larsen, accusing them of conducting a $1.3 billion unregistered securities offering through XRP. In its complaint, the SEC specifically addressed the ODL platform, alleging that much of its adoption was not organic or market-driven but was instead subsidized by Ripple. The regulator claimed that at least one money transmitter found ODL to be more expensive than traditional payment rails and would not use it without significant compensation from Ripple.
While the SEC did not name that money transmitter, the timing and financial details align with Moneygram. The SEC argued that the money transmitter became another conduit for Ripple's unregistered XRP sales into the market, while Ripple benefited by touting inorganic XRP usage and trading volume.
Impact on Ripple's ODL Business and Crypto Adoption
Moneygram's suspension is a severe blow to Ripple's ODL business, which relies on liquidity providers and payment corridors to function. Losing Moneygram eliminates a major real-world use case that Ripple had been promoting to traditional financial institutions. The uncertainty around the SEC case may also deter other potential partners from adopting ODL, as they fear regulatory repercussions.
For the broader cryptocurrency industry, the Moneygram decision underscores the critical importance of regulatory clarity. If the SEC prevails and XRP is deemed a security, it could set a precedent that affects other digital assets and their integration with traditional finance. The case also highlights the fragility of partnerships that depend on subsidized token usage rather than genuine economic value.
As the litigation continues, Ripple is fighting the SEC's claims, arguing that XRP is not a security and that the regulator failed to provide fair notice. The outcome will have far-reaching implications for how crypto projects engage with regulated financial institutions. Moneygram's move may be the first of many similar reactions if the legal environment remains uncertain.
In the coming months, the market will watch closely for any developments in the SEC vs. Ripple case, as well as for signs of recovery in the Moneygram-Ripple relationship. For now, the pause is a stark reminder that even the most prominent crypto adoption stories can be disrupted by regulatory action.