Ripple Enters Wall Street’s Leveraged ETF Game With Swap Financing

Ripple, a crypto payment company, is moving deeper into Wall Street, with its Ripple Prime unit emerging as a serious player in providing swap financing to leveraged ETFs. 

The expansion comes as demand for leveraged funds grows, giving Ripple a new source of fee income in a market that has long been dominated by major banks.

Ripple Prime Moves Into Leveraged ETF Financing

Ripple’s acquisition of prime brokerage firm Hidden Road last year is helping the company build a new source of fee income.

Nowadays, leveraged ETFs use swaps to get more exposure to an asset without buying the full amount directly. That is where Ripple Prime comes in, providing financing for these trades and earning fees from the service.

However, the market is also growing, as the U.S. has 593 leveraged ETFs with more than $256 billion in assets, including 426 funds linked to individual stocks.

Therefore, ETF expert Nate Geraci called Ripple a “serious player in providing swap financing to leveraged ETFs.”

Ripple Earns Fees From Leveraged Trades

One example is the Tradr 2X Long SNDK Daily ETF, which aims to deliver twice the daily move of SanDisk stock.

The fund pays Ripple an annualized financing rate of around 8%, based on the overnight bank funding rate plus four percentage points. This cost is separate from the ETF’s management fee.

Ripple Prime President Noel Kimmel said the business is becoming an important part of the company.

“It’s definitely a growing and meaningful part of our business.”

3X Bitcoin and Ether ETPs Add a New Opportunity

The timing is also important for crypto markets. The first 3X leveraged Bitcoin and Ether ETPs began trading on Cboe BZX after receiving SEC approval.

These products use CME futures and swaps instead of directly holding Bitcoin or Ether. 

Because they trade with leverage, they need regular financing, collateral, and rebalancing. This gives Ripple Prime another way to earn fees by supporting these products.

Ripple Expands Its Wall Street Footprint

Ripple Prime is also moving beyond ETFs. On 6 October, Brevan Howard, which manages about $35 billion, agreed to use Ripple Prime for brokerage, clearing, and financing.

Ripple Prime has more than $1 billion in regulatory net capital and raised $275 million through a senior debt offering to support its growth.

However, Ripple has not disclosed how much revenue comes from leveraged ETF financing or how much of the business uses XRP or the XRP Ledger.