Brad Kimes is a professional drummer. For 30 years he played in various bands — rock, funk, blues, R&B, you name it. Between gigs, he worked as an aspiring entrepreneur, and he invented a baby playpen that you could use on the beach. He found suppliers in China. Kimes soon became a global importer, and to make cross-border payments, he was forced to use the clunky international banking system called “SWIFT.”
SWIFT was not swift. It was slow and costly. “There’s no tracking ID,” says Kimes. “And when the payment gets there six days later, you find out there’s a currency manipulation that had taken place. And you have to pay the difference.”
Was there a better solution?
This is a common “origin story” in the crypto space. I’ve heard many like it. Someone tries to do something simple with traditional finance, it’s a headache, they get frustrated, and then the lightbulb goes on and they say, “Then I discovered bitcoin.”
But Kimes had already discovered bitcoin. That didn’t strike him as the right solution. Instead he found something else, something newer, something he believed to be cheaper and faster and more efficient.
Created by Ripple Labs, XRP was designed with banks and corporations and the financial system in mind. If bitcoin’s unofficial motto is “be your own bank,” XRP’s is the less inspirational “let’s improve the banks.” Ripple is at odds with much of crypto’s prevailing ideology. For years, it has been dismissed, overlooked, or outright scorned by much of the space.
“The technology works. It does what it says it can do,” says Kimes. After doing more research, he believed that XRP could be the hot knife that cuts through all the buttery layers of banking red tape. And it doesn’t require energy-guzzling Proof-of-Work mining. “Bitcoin can solve that problem for a lot more money,” says Kimes, who clarifies that he has no ill-will towards bitcoin, as it “showed us all what’s possible,” and considers it to be an important stepping-stone technology, like the pager or the early flip phones. But the way Kimes sees it, “None of us are using the first cell phone anymore.”
Kimes is sympathetic to the ideals of bitcoin. “Bitcoin in its white paper is anti-bank, anti-establishment,” says Kimes. “The libertarian in me loves it. The libertarian in me absolutely goes f#$king nuts for it. I’m like, ‘Hell yeah, down with the man!’”
Then he pauses. And he adds a crucial disclaimer. “I’m also an adult,” says Kimes, who’s 52 years old. “As an adult, I understand that the legacy firms, and systems, and governments, and central banks of the world aren’t going for any of that shit.”
Kimes might not love the world of banks and governments, but he thinks it’s absurd to imagine that a decentralized currency, like bitcoin, will actually topple the system. Or, as he puts it, the government will “bring in the tanks and the fucking guns before they let anybody come in with no fucking name [Satoshi Nakamoto] to run the fucking show. It’s not going to happen.”
That’s the message that Kimes now preaches on “Digital Perspective,” his daily show about XRP. The drummer is now beating the drum for why XRP — and its embrace of the banking system — is more likely to flourish than the anti-establishment ethos of bitcoin. “They can’t stop the technology,” says Kimes of bitcoin, “but they can tax it and regulate it out of existence.”
Kimes is a central player in the XRP community, aka the “XRP Army.” This is an Army that much of crypto loves to hate. XRP has long been mocked for not being a “real” cryptocurrency project, because (claim the critics) it’s not truly decentralized, and that Ripple Labs owns a large chunk of the 100 billion XRP in circulation, which it continues to sell on a set schedule on secondary markets. (XRP supporters counter that the “too centralized” charge might have once been true, but it’s not anymore and that Ripple controls only a tiny fraction of the XRP Ledger.)
The XRP Army, to outsiders, is known mostly for its flaying of Ripple critics, for protestation about FUD, and celebration of price pumps. The Army sometimes makes menacing and vaguely threatening tweets like “Ignore Ripple and XRP at your own risk.”
This has been the case for years. XRP Army is such a force that in 2018, CoinDesk included it on the annual list of crypto’s Most Influential. “The XRP Army distinguishes itself mainly through scale and organization,” David Floyd wrote for the site in 2018. “Question another coin’s merits, and a handful of trolls might come out of the woodwork. But measured by volume, intensity, duration and consistency, the attack will pale in comparison to an XRP Army operation.”
Floyd should know. Even before he wrote the piece, members of the XRP Army mobilized to attack him, calling him a “paid assassin,” a desperate “hater,” and someone suffering from a “delusional disorder.” More recently, when Fortune editor Jeff Roberts wrote a largely positive piece about XRP titled “Ripple and XRP may finally be for real,” some in the XRP Army still needled him on Twitter. (For what it’s worth, this didn’t happen to me. I was ignored by some of the people in XRP Army I reached out to, but I faced no hostility.)
If it’s true that the XRP Army has vocal extremists who can be toxic on Twitter — there’s a lot of that in crypto — it’s also true that the community is packed with pragmatists like Kimes. They focus on utility and see themselves as the “adults in the room.” (It’s a phrase I heard numerous times in my reporting.) Consider the recent XRP convention, organized by Kimes, that took place in Las Vegas. Whereas some came to Bitcoin Miami dressed as wizards, many of the XRP faithful in Vegas were older guys in suits. Businessmen. One attendee told me, “I’m 37, and I was one of the babies in the room.”
One of the XRP influencers in Vegas was “Digital Asset Investor,” or DAI, who hosts a daily show about XRP. He was drawn to the project years earlier when he scrolled through Coinmarketcap.com, studied the top 30 cryptocurrencies, and did research on their leadership teams. “The only one that I could find that had a group of entrepreneurs with MIT and Harvard degrees was Ripple,” says DAI. “They were all major Silicon Valley people with pedigrees. I was like, ‘Something’s different about this one. Something’s special.’”
DAI likes that these “adults in the room” are quite literally the adults in rooms with other powerful figures. If Bitcoin is for outsiders, XRP is for the insiders. “[Ripple CEO] Brad Garlinghouse, he was in a room in Switzerland, and I know he had the Hong Kong Central Bank in the room. He had the Russian Central Bank,” says DAI. “You’ve got to understand, this is what we’ve been studying and obsessing about for five years.” DAI estimates that Ripple has been “working with as many as 50 central banks from around the world.”
The magic of XRP, says Kimes, is that it can provide an instant tool for settlement without entities (like central banks) needing to have large liquidity pools. That frees up resources and saves money. This is why Kimes and DAI are bullish that it could someday be designated as a global stablecoin. XRP wouldn’t replace the dollar or the yuan or the euro; it would instead be a bridge for all these things.
This is all preamble to say that the XRP Army is genuinely bullish on the real-world utility of XRP. They expect it to improve the current system, they expect it to get widely adopted, and they think the price will eventually “moon.”
But they also have a bone to pick.
The problem is that XRP hasn’t gone to the moon. It hasn’t come close. For perspective, in January of 2018, around when bitcoin claimed its then-all-time-high of nearly $20,000, XRP was worth over $3. Then the prices collapsed during the bear market. When the price of bitcoin roared back in 2021, the XRP Army assumed their holdings would do the same.
Bitcoin surged to more than $60,000, or three times its all-time high from the last cycle. So by that logic, XRP should hit $9 or maybe even $10, right?
It failed to crack $2.
The price has slumped to around 50 cents, leaving much of XRP Army — especially the ones who bought at over $1 — frustrated and bitter.
The obvious reason for the price stagnation is the SEC’s lawsuit against Ripple Labs, which was filed in December of 2020 and now, finally, looks to be nearing a resolution. That’s part of the story.
But Kimes, DAI, and the XRP Army have another theory for why XRP has lagged Bitcoin and Ethereum. It’s an explosive theory that animates the community. It’s a theory rarely talked about outside of the XRP Army. It’s a theory so spicy they assumed CoinDesk would never allow it to be published.
The theory is called “ETHGate.”
John Deaton is a former Marine. Bald and muscular with an intimidating goatee, he’s also a plaintiff’s attorney who represents victims of mesothelioma and asbestos cancer. He’s not a crypto lawyer. But he had invested in XRP, Ethereum, and Bitcoin (XRP was his smallest holding), and in December of 2020, he began to obsess over an issue he never imagined he would care much about: SEC’s lawsuit against Ripple.
He didn’t think it was a big deal, at first. “Companies get sued,” says Deaton. “I figured it would be a traditional securities case.” Then Deaton read the complaint more closely. “It basically said that all XRP are securities, no matter the circumstances surrounding the sale,” says Deaton. “This is the most over-broad, far-reaching, outrageous case I’ve ever read. It made no sense.” The charge was so sweeping that Deaton wondered if it was a “weapon,” and “meant to do damage.”
At first this was just speculation. Then Deaton began to connect a few dots. First, then-SEC Chairman Jay Clayton filed the lawsuit on December 22, 2020, on his very last day in office. This seemed like odd timing. The lawsuit targeted only Ripple, not Bitcoin or Ethereum. Then he came across a letter from Joseph Grundfest, a law professor who had worked as a liaison between the Ethereum founders and the SEC years earlier. Grundfest sent the letter only days before the lawsuit was filed.
Grundfest’s letter cautioned the SEC against a lawsuit, in part because the action would “impose substantial harm on innocent holders of XRP, regardless of the ultimate resolution,” and that “if the Commission is to maintain its tradition of fairness, ether and XRP should be treated similarly; if ether is to be allowed to trade freely in the market, so too must XRP, and if XRP is to be subject to restrictions, so too should ether.”
But ether and XRP weren’t treated the same way. Grundfest’s advice was ignored. (Deaton obtained the letter through the Freedom of Information Act and uploaded it to his website; you can read it here.) On January 1, 2021, nine days after the lawsuit against Ripple, Deaton filed his own action against the SEC. “I simply asked for the SEC to amend the complaint to only go after Ripple,” says Deaton, meaning the scope should just be Ripple Labs the company, not XRP the tokens. If the SEC targets XRP, says Deaton, then all they’re doing is “hurting innocent people who have no connection to Ripple.”
And those people were hurt. In the wake of the SEC’s lawsuit, the price of XRP tumbled to below 20 cents. Coinbase and other U.S. exchanges booted XRP from their listings. One analysis estimated a $15 billion loss of market value.
“It was devastating,” says a member of XRP Army who goes by the alias “James Rule XRP.” James is 56 years old, he has a friendly Texas accent, he used to work on an oil refinery, and he believes in the project so much that he converted his entire 401(k) into XRP. He hosts a daily YouTube show that’s mostly about XRP.
James was once — briefly — a crypto millionaire. In 2017, he bought the vanity license plate “XRP RICH.” He still believes in the project and he still expects to be XRP-rich, but as he says now, “I’m cash poor.” He now works at a Lowe’s hardware shop. (James is both humble and good-humored about his pivot to manual labor, saying he enjoys setting an example for his younger coworkers, even when “I’m sweating my ass off.”)
When Deaton filed his lawsuit against the SEC, he asked other XRP holders to join it. James hopped aboard. Then tweets about Deaton’s action ricocheted throughout XRP Army. Soon 2,000 XRP holders joined him. Then 5,000. There are now over 75,000 XRP holders part of Deaton’s claim, and he has been granted the official status of “amicus curiae” in the SEC’s lawsuit against Ripple, loosely meaning that his perspective can be taken into consideration by the court.
Meanwhile, something kept bugging Deaton. If the lawsuit is indeed a weapon against Ripple, what’s the motivation? He did some sleuthing. He pulled the records on another key player in this saga, Bill Hinman, the SEC’s former Director of Corporate Finance. On June 14, 2018, Hinman gave a speech saying that bitcoin and ether — the only two cryptocurrencies he mentioned — were not securities. The speech, effectively, gave Bitcoin and Ethereum a “free pass.” For the next five years, many in the crypto space would dissect and parse that speech.
Why did Hinman single out Ethereum? “Jay Clayton would never talk about specific tokens. [Gary] Gensler, to this day, would never speak about specific tokens. Hester Pierce will never speak about specific tokens,” says Deaton. So why Hinman? “The cynic in me said, ‘I wonder if Hinman has any ties to Ethereum or Bitcoin.’”
So Deaton did more digging. And thanks to Twitter influencers like DAI and Kimes, the soldiers of XRP Army began to hunt for more evidence. Deaton called it “decentralized justice.” They found old videos from crypto conferences. They unearthed obscure footage from meet-ups. And they dragged up evidence that many in the Ethereum community, almost certainly, would prefer to leave under the carpet.
After pulling the disclosures that must be made by federal employees, Deaton found that “In less than four years at the SEC, [Bill Hinman] collected $15 million from Simpson Thacher.” Simpson Thacher is a law firm. This is relevant for two reasons: Hinman worked for Simpson Thacher before and after his tenure at the SEC; and Simpson Thacher was part of the Enterprise Ethereum Alliance (EEA), a “member-led industry organization whose objective is to drive the use of Enterprise Ethereum.” And this is no longer just Deaton and the XRP Army making allegations. Empower Oversight, a non-profit watchdog devoted to government transparency, noted “clear conflicts of interest” and sued the SEC, demanding that any documents related to Simpson Thacher be revealed.
Perhaps the $15 million was just a juicy pension package. And perhaps this was just a coincidence. It’s also quite possible that the money was deferred compensation for work prior to his time at the SEC. But the XRP Army wonders, could $15 million help nudge Hinman’s decision-making to explicitly give Ethereum a free pass, but not XRP? (Hinman has subsequently denied being aware that Simpson Thacher was involved with the EEA when he was at the SEC, and a “person close to Hinman” told Fox Business that the $15 million was indeed just a generous pension package.)
XRP Army found more bits of evidence. There’s the video from early 2014, before the launch of Ethereum, where a young Vitalik Buterin answers questions about the “Ethereum IPO.” The XRP faithful see this as a smoking gun. How could XRP be a security and not Ethereum, when its most high-profile co-founder literally called the ICO a “fundraiser”? One bit of nuance here is that Hinman tacitly acknowledged the Ethereum ICO in his speech, saying “putting aside the fundraising,” ether is not a security; the XRP Army thinks that’s like saying “the Titanic was a lovely trip, putting aside the iceberg.”
On his website, Deaton has a meticulous timeline that makes the case for hypocrisy, double standards and conflicts of interest. This is the heartbeat of ETHGate. Deaton makes connections between early Ethereum boosters and companies like JP Morgan and Andreessen Horowitz, he suggests a pattern of coziness between Ethereum allies and the SEC, and he makes cold-eyed observations such as “ConsenSys was advised in its Quorum acquisition by Sullivan & Cromwell, SEC Chairman Jay Clayton’s former law firm. This was four months before the Ripple lawsuit was filed by the SEC.”
Then there’s the “whales video.” DAI points to another old video that XRP Army somehow discovered, which reveals a 2014 Silicon Valley meet-up with Ethereum co-founder Joseph Lubin. This was shortly before Ethereum’s ICO. Someone asks Lubin, “Will there be a limit on the amount a person can invest in Ethereum?”
Lubin’s response, which is audio-only in the video: “A person can buy from any number of different identities. We may limit the… unit size…But if you are a whale, and if you’re planning on investing several million U.S. dollars’ worth, then you can do that from multiple identities.”
The XRP Army finds this appalling. “These disguised whales bought boatloads of ether behind the scenes,” says DAI. “This is what they don’t want to talk about.” He says that the Ethereum founders love to tout their “decentralization,” but there were disguised whales buying large chunks of Ethereum from multiple anonymous identities, so “it was bullshit from the word go.” (CoinDesk reached out to Lubin to request a comment; he did not respond.)
There are different levels of beliefs in ETHGate. Some believe the SEC simply had a conflict of interest — a bad look, but nothing sinister. Others think it’s the biggest financial story of the century; one soldier in XRP Army believes that “ETHGate is bigger than Enron.” Some suggest foul play. “I do believe it was used as a weapon,” says Kimes. “How the f*$k did they [the SEC] know to sue Ripple? Why wasn’t it one of those other f%$king companies?” His theory is that the Ethereum boosters feared XRP would be a real threat — (what if there’s an XRP partnership with the Federal Reserve?) — so they hobbled Ripple as a form of regulatory capture.
Deaton, Kimes, DAI, and the XRP Army believe they’ve already collected all the evidence they need to show a clear conflict of interest. But they think they’re on the verge of discovering a bombshell, something that could make their case undeniable: the “Hinman emails.”
When Hinman gave his fateful speech in 2018, the one that effectively gave bitcoin and ether a free pass, he likely had internal deliberations with his staff about how the SEC should approach Ethereum, XRP, and the rest of the cryptocurrencies. His emails and documents would shed light on that thinking. Deaton and the XRP Army has demanded that the SEC disclose those documents, almost as if they were crucial evidence in the JFK assassination; the SEC had refused. “We don’t know what’s in them until we see them,” says Kimes, but he suspects they will “range from shameful to criminal.”
Finally, in a victory for XRP and Ripple, the judge in the case, Analisa Torres, ordered that the Hinman documents be unsealed. They’re expected to be made public on June 13.
The larger crypto community, including crypto media, has mostly ignored or avoided this beef between the XRP community and Ethereum. Fox Business was one of the few outlets to cover it. “I do think there are glaring conflicts of interests,” says reporter Eleanor Terrett, who did her own extensive research and co-wrote the 9,000-word Fox Business story. “Whether there was corruption, I’m not the one to say.”
Terrett suspects the unseemly conflicts have more to do with the “revolving door” nature of government and the private sector, as it’s common (if problematic) for government officials to later collect fat paychecks from the very entities they once regulated. This is unfortunate but not criminal. Terrett later followed up via Twitter DM to say that on the other hand, it did strike her as notable that the SEC was so reluctant to reveal the documents, which means “you have to imagine there’s something the SEC doesn’t want the public to see in there.”
So why does all of this matter?
On the most obvious level, as Grundfest once argued in his letter to the SEC, those who purchased XRP have seen their investments languish. That’s real money for real people – just ask a certain 56-year-old worker at a Texas Lowe’s hardware store. The SEC’s job is to protect investors; their lawsuit hurt investors. This is not trivial, as 4.5 million wallets contain XRP. And the lawsuit has cost Ripple Labs $200 million, according to Garlinghouse.
Going a bit deeper, the lawsuit has almost certainly hampered growth in the XRP Ledger ecosystem. “It affects us,” says Adam Kagy, the CEO of XRP Cafe, which is working to build an NFT platform on the XRP Ledger. “We just started looking for pre-seed funding, and a lot of the VCs are hesitant to dip their toes into the XRP ecosystem, because of that.” DAI argues that without the handcuffs of the SEC lawsuit, it might have been XRP — not Ethereum — that served as the hub for dapps and NFTs and innovation.
Your mileage will vary on how much you think Ripple was targeted for some malicious purpose. Not even all XRP enthusiasts are onboard. “I don’t believe that there’s some big conspiracy to keep down Ripple,” says XRP advocate and crypto social media influencer “Your Bro Quincy,” who spoke at the XRP Convention in Vegas.
But regardless of the motives, it seems fair to say that at the very least, at a bare minimum, the XRP Army has reasonable grounds to complain of a double standard by the SEC, which created an uneven playing field.
“I think the XRP Army is right to be annoyed that their scheme has been singled out,” says Preston Byrne, a crypto-focused lawyer at Brown Rudnick (Byrne, who writes regularly for CoinDesk, is known for his outspoken views). He believes the Ethereum Foundation, which oversees development of the second-blockchain, “fundamentally engaged in the same activity” as Ripple, which was to sell crypto tokens for profit in the U.S., so “there should have been similar consequences for those two schemes, and there just wasn’t.”
Giving further credence to XRP Army, Byrne adds that the SEC was targeted by a “huge marketing campaign from Ethereum promoters, and people with large quantities of Ethereum” so that the SEC would “leave it alone in the name of technology.” But there’s yet more nuance. Byrne adds that there are other reasons the SEC could have chosen to prosecute Ripple and not Ethereum, including that Ripple continues to sell XRP on secondary markets. “If you sell tokens in the market on January 1, and you’re not supposed to do that, bang, that’s a violation,” says Byrne. “If you do it again on March 10, bang, that’s another violation.” Because of these repeat offenses, says Byrne, “I think it was easier to pin the tail on Ripple.”
As for the grander conspiracy of ETHGate? Byrne, deadpan, says that “The part about ConsenSys being made up of lizard people is entirely true.” (ConsenSys is the Ethereum developer that Joe Lubin founded after co-creating Ethereum.)
The final plot twist is that the wider crypto community, which has for so long held its nose at XRP, is now beginning to root for Ripple. If Judge Torres rules that XRP is not a security, that could provide the clarity that the space has long coveted. Suddenly much of crypto is now Team Ripple.
“I’ve been critical of Ripple in the past…but more aligned with them than ever before,” Ryan Selkis, the CEO of Messari, said in March. “Ripple should win the overreaching XRP-SEC case, and the XRP Ledger should be afforded the opportunity to compete fairly on digital payments [infrastructure] globally. Demand is there!” Or as Forbes contributor Sam Lyman tweeted, “Right now, the XRPArmy is carrying all of crypto on its back.”
But there’s another way this could play out. Byrne suspects that the XRP Army might get what it’s been seeking all this time — equal treatment as Ethereum — but not quite in the way they expect. Be careful what you wish for. “Now it’s clear that Gensler is on the warpath and no one will be exempt,” says Byrne. “It’s pretty obvious that equal treatment will be applied across the board.” (I spoke to Byrne before the SEC slapped a lawsuit on Binance and then Coinbase; his “warpath” theory looks prescient.)
Instead of XRP being treated as a non-security like Ethereum, Byrne has a hunch that Ethereum (and virtually all other cryptocurrencies) will be treated as a security like XRP. He thinks there’s a 95% chance that Ripple loses the case. (He explained his logic more fully in a CoinDesk op-ed.) Byrne thinks that ultimately, the SEC has no choice but to follow the laws as they’re written by Congress. So the XRP Army should “save their fire not for Ethereum, but for Congress,” he says. “At the moment, that’s the framework we’ve got, and the SEC doesn’t have a choice.” Not every lawyer agrees with this interpretation, of course. John Deaton gives a counter-argument — why XRP is not a security — in an essay for Bloomberg Law.
Brad Kimes, the drummer, believes that Ripple will win. So does DAI and much of XRP Army. That certainly includes James, the Texan who literally bet his entire financial future on the fate of XRP. He predicts “double digits” for XRP’s price — as in $10, or 20X where it is today — if and when Ripple wins the case.
“I’m just a guy sitting at my kitchen table in Southeast Texas, looking out my window at cows and horses and chickens,” says James. “And I’m sitting here living so frugally, knowing that I’m going to have anything I want in the foreseeable future.”