A recent price phenomenon involving Ripple’s XRP and Stellar’s XLM has sparked debate within the cryptocurrency community. The two digital assets have exhibited remarkable consistency in their price movements for the past decade, trending in the same direction.
This correlation has reignited discussions surrounding the potential impact of burning XRP tokens held in escrow by Ripple.
Read Also: Making XRP a Reserve Currency: Experts Explain Role of 40 Billion XRP in Escrow
Stellar’s Burn and its Limited Effect
In November 2019, the Stellar Development Foundation (SDF) undertook a significant token burn, removing 55 billion XLM from circulation. This monumental action, representing roughly half of the total XLM supply at the time and valued at $4.4 billion, aimed to influence the token’s price.
However, the burn produced a negligible effect. Despite the substantial reduction in supply, XLM’s price remained remarkably stable and continued to mirror XRP’s price movements.
This episode is a crucial reference point for the ongoing debate about burning Ripple’s XRP escrow. A segment of the XRP community advocates for burning these escrowed tokens, believing it would alleviate price suppression caused by Ripple’s periodic sales. For context, Ripple sold approximately 841 million XRP in the first quarter of 2024, and their current escrow holdings stand at 39.7 billion XRP.
Legal Expert and Ripple CTO Weigh In
Australian attorney Bill Morgan, a prominent figure in the cryptocurrency legal landscape, provided valuable insights into the XRP-XLM correlation. He suggests that Stellar’s burn experiment serves as a strong indicator that burning XRP from escrow would likely be ineffective in manipulating XRP’s price.
Morgan points out that factors beyond the direct control of the XRP Ledger and Stellar ecosystems appear to be the primary drivers behind the price movements of both assets.
Adding to the conversation, Ripple’s Chief Technology Officer, David Schwartz, acknowledged the perplexing nature of the XRP-XLM price correlation. He emphasizes that external forces, independent of the Ripple and Stellar ecosystems, are likely to exert the most significant influence on the price movements of both tokens.
Schwartz reinforces this argument by highlighting the negligible impact of Stellar’s substantial token burn on its price divergence from XRP. He has previously expressed similar sentiments, suggesting that burning escrowed XRP would be an unproductive use of resources as it wouldn’t significantly alter XRP’s price trajectory.
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Read Also: Ripple CTO David Schwartz Shares Thought On Ongoing XRP Burn Debate – Details
Despite the ineffectiveness of a similar burn by Stellar, some within the XRP community believe burning Ripple’s escrowed XRP could boost the price by addressing investor sentiment.
However, experts counter that external factors, not investor sentiment, likely drive the XRP-XLM correlation, pointing to the ongoing legal case against Ripple having no lasting impact on the price link. The true cause of the correlation remains unclear, and further analysis is needed before deciding on burning Ripple’s XRP escrow.
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