In an email interview with Forkast’s Pradipta Mukherjee, Ripple’s Asia Pacific Policy Director Rahul Advani discusses the SEC case, what he called record growth at Ripple in 2022, and the global regulations needed for the digital asset economy to grow and prosper. The Q&A has been edited for clarity and length. 

See related article: What is XRP and what is Ripple?

Pradipta Mukherjee: How do you see the SEC lawsuit unfolding this year?

Rahul Advani: We are hoping to see the Judge’s decision in the first half of 2023. The SEC is not looking to apply the law – they are looking to remake the law – in the hope that it can expand its jurisdiction. We hope that a resolution to this case will help to bring about the much needed regulatory clarity for the U.S. crypto sector.

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Rahul Advani, Ripple’s Asia Pacific Policy Director

Mukherjee: How has the crypto market downturn affected Ripple?

Advani: It’s certainly been a turbulent year in both the crypto and financial markets. Ripple has been around since 2012, so it’s not the first time that we have encountered a downturn in the market and frankly, it won’t be the last. We have always been focused on building around utility and we believe that real crypto use cases will be able to withstand the test of time.

Despite market conditions, we have continued to see massive growth and scale at Ripple. In fact, 2022 has been our strongest year as we enter new markets, bring on new customers and grow our global footprint. Through RippleNet, we have processed millions of transactions worth billions of dollars and have seen our payment volume run rate exceed US$15 billion for the year.

Our On-Demand Liquidity (ODL) solution is now available in nearly 40 payout markets, representing about 90% of the daily US$6 trillion FX market – a significant milestone toward global coverage. APAC (Asia Pacific) in particular has been leading the way as one of the biggest contributors of ODL dollar volume.

We’ve introduced products like Liquidity Hub to help businesses source crypto liquidity on-demand across a number of crypto assets. One of the latest customers is Supermojo, a checkout and financing platform designed to make digital assets and non-fungible-tokens (NFTs) more accessible.

We have been supporting the crypto ecosystem since at least 2015 and we’ve invested in about 60 companies and funds, totalling half a billion dollars.

Mukherjee: How do you see the crypto market in 2023? What highs and lows do you expect?

Advani: Events in 2022 have underscored the urgent need for additional safeguards to protect retail crypto investors. In the new year, we can expect to see jurisdictions around the world working to finalize crypto asset regulation frameworks. By the end of 2023, we expect to see most jurisdictions with broad crypto asset legislation on the books.

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Image: Envato Elements

When digital asset markets became more active around five years ago, regulators assessed money laundering and terrorist financing risks as the key areas of concern. However, with the rapid growth in scale and complexity of digital asset activities, other risks have surfaced – as we’ve seen with recent events like FTX. With that in mind, we expect that regulators will increase their focus on consumer protection, retail investor safeguards, market integrity requirements, and business conduct requirements during 2023.

Additionally, I think that we’ll likely see more consolidation in the crypto space – this is a positive sign that the industry is maturing. What we’re seeing today has parallels to the “dotcom bubble”, where there was a rapid growth in internet-based companies followed by a sharp crash. Yet, we cannot imagine a world without the internet today. 

In 2023, I think that more companies will turn their focus to unlocking real use cases, while players with questionable fundamentals that rely on industry hype cycles will likely exit the market. I would argue that this is a crucial step for the long-term health of the crypto sector.

Mukherjee: We are seeing job cuts of as much as 40% across the crypto industry, what does that say about the financial strength of crypto businesses?

Advani: Coming off the back of a tech hiring spree during the pandemic, we’re now seeing the job market gradually cool as economic headwinds pick up. Layoffs and hiring freezes have shaken up the wider tech sector, not just in crypto. This is undeniably a setback for the industry, but I think that it’s necessary that the crypto space recalibrates and finds its balance again.

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At Ripple, however, we had a record year of hiring, bringing on more than 350 new employees in 2022 – nearly half of which are based outside the United States. We have hired during crypto winters before and many of these people grew to become some of our longest-serving employees.

Mukherjee: Is the worst over for the crypto market? Or will it get more difficult in 2023?

Advani: It is hard to say how long or harsh this ‘crypto winter’ will be. However, the crypto ecosystem has proven its resilience before, emerging from the 2018 winter with renewed vigor, and we’re placing our bets on the crypto industry coming back stronger this time around as well.

Crypto is definitely here to stay, but only real use cases will withstand the test of time. 

So, I think that we’re going to see a shift away from highly speculative use cases. Heading into 2023, the spotlight will be on crypto companies that are able to harness blockchain technology to address real customer needs and solve real problems.

Mukherjee: What was the main trigger within the crypto industry for the downturn in 2022?

Advani: There are multiple underlying factors at play here, and of course, broader macroeconomic trends have had a part to play in the crypto market downturn. 

Crypto markets, much like any other market, are cyclical, and we’ve seen similar downturns before. However, in my opinion what is different this time is the systemic nature of the downturn. We’re seeing a market that’s more interconnected in nature – from Terra/Luna, to Three Arrows Capital, to Celsius, and most recently FTX. The ensuing liquidity crisis has brought to light the need for better governance and greater transparency within the industry.

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Transparency is the underlying philosophy that drives blockchain technology. It empowers regulators and policymakers to manage the risks of emerging technologies like crypto and allows consumers to make well-informed decisions.

At Ripple, we issue a quarterly market report on critical sales and purchases made by Ripple within the crypto markets. We believe that this is a good example of the types of action to help build trust and transparency into the industry as we look to 2023.  

Mukherjee: How will the broader economic concerns and interest rate increases affect the crypto industry in 2023?

Advani: Investors and venture capital firms are being more discreet with where they’re putting their funds. They are increasingly looking for utility and value, and as a result, are scrutinizing the viability and impact of different technologies and business models much more closely.

Crypto companies will therefore have to be laser-focused on delivering real value to their customers. 

Mukherjee: What kind of regulations are needed to prevent a repeat of the FTX failure? 

Advani: The FTX collapse underscores the need for a comprehensive and nuanced regulatory framework that treats different actors in the crypto assets space according to their own risk profiles. It also highlights a fundamental lack of transparency in many parts of the crypto industry. 

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To rebuild trust and ensure this does not happen again, the industry needs the clarity that is provided by appropriate regulation. This must include robust measures for consumer protection but also recognise the different risks posed by business-facing crypto companies.

Such risks could include managing technology and cyber related risks; ensuring retail investor safeguards; business conduct requirements such as segregation of accounts and managing conflicts of interest; and market integrity measures to ensure that there are no unfair trading practices such as market manipulation, misleading conduct, or insider trading.

Therefore, we believe a risk-based approach to regulating the sector will be key, and a “one size fits all” approach will not work.

In order to reduce regulatory uncertainty and provide clarity to the legal character of digital assets, it’s also important for regulators to develop a taxonomy for digital assets. This will allow for regulatory frameworks that are forward looking and flexible while providing regulatory certainty and consumer safeguards, and at the same time meet the policy goals of encouraging innovation and growth.

The (FTX) collapse also sheds light on the potential for global regulatory arbitrage. The more coherent and cohesive regulations established across major jurisdictions, the less likely bad outcomes like FTX will occur.

For example, the Monetary Authority of Singapore (MAS) is already consulting on proposed new regulations for digital payment token (DPT) service providers that will address such risks.

Singapore. Image: Envato Elements

Such measures could go a long way towards building greater transparency within crypto – and will be key to rebuilding trust in the industry. We firmly believe that there are many responsible actors in this space who are acting in good faith, and it is our hope that the crypto industry can work hand-in-hand with policymakers and regulators to develop a supportive and transparent ecosystem where crypto innovation will thrive.

Mukherjee: Following the FTX collapse, will regulators get tougher about awarding licenses to crypto businesses?

Advani: We hope that the increased scrutiny will help bring about more thoughtful legislation, rather than a knee jerk response which could stifle future innovation within the crypto industry.

Governments that are re-evaluating their crypto regulations would do well to look at Singapore, where a clear licensing framework and token taxonomy have been laid out. Digital assets are regulated either as digital payment tokens (DPT) under the Payments Services Act, or as digital tokens which constitute capital markets products and are regulated under the Securities and Futures Act.

This allows for an activity-based licensing framework encompassing a wide range of activities, which better facilitates innovation while mitigating risks.

The introduction of such robust and well-informed guardrails will protect consumers and market integrity while boosting confidence in the crypto sector.