Today Ripple announced it has agreed to buy crypto prime broker Hidden Road with a $1.25 billion price tag. While Hidden Road provides prime brokerage services for FX and precious metals, it is best known as a digital asset prime broker. Most of its investors in its $50 million Series A funding in 2022 were crypto firms, except for Citadel Securities.
Hidden Road has 300 institutional customers and clears $3 trillion across all markets annually. There are several key differences between a prime broker and a broker dealer. Firstly, prime brokers usually provide the funding to support their clients’ trading on margin. With Ripple planning to inject billions in new capital, this will be a massive boost to Hidden Road’s ability to provide funding. Secondly, prime brokers usually provide clearing services. Even if an institution executes transactions elsewhere, they will have them cleared via their prime broker, to enable them to benefit from netting and funding.
“With new resources, licenses, and added risk capital, this deal will unlock significant growth in Hidden Road’s business, allowing us to increase capacity to our customer base, expand into new products, and service more markets and asset classes,” said Marc Asch, Founder and CEO of Hidden Road. “Together with Ripple, we’re bringing the same level of trust and reliability that institutional clients are accustomed to in traditional markets — designed and optimized for a digital world.”
Analysis: Ripple wants Hidden Road to use XRP Ledger
Historically Ripple has had great technology, but the price of the XRP cryptocurrency (market cap $113 billion) anticipates a level of adoption that exceeds the current scale of the XRP Ledger.
With this acquisition, Ripple hopes to increase XRP Ledger usage. It plans to use its RLUSD stablecoin for collateral as margin for trades. Plus, Hidden Road will use the XRP Ledger in its back office. In other words, the recording of the trades and clearing will happen on the XRP Ledger.
Privacy is a key reason why institutions have failed to fully abandon their affinity for permissioned blockchains. So the big question is whether institutions will feel comfortable if Hidden Road uses the public XRP Ledger for clearing and settlement.
One way to obfuscate transactions on blockchains is to repeatedly use fresh wallets. However, the whole point of Hidden Road’s clearing is to aggregate transactions, which would make an institution’s global activity even more obvious.
Another potential path is the use of the Interledger Protocol (which leaks some data) combined with a private Layer 2 solution.
Or will Hidden Road use a private version of the XRP Ledger? In that case, it may help a little with adoption of the technology, but will benefit Ripple Labs more than the XRP price.
