Assessing the sudden increase in XRP transaction volume

On the 21st of October, XRP processed around 730,000 daily transactions. Less than a week later, the cryptocurrency was recording over 1.6 million transactions every day. This increase of more than 100 percent made XRP responsible for 50 percent of all crypto transaction volume, according to data from BitInfoCharts.

Commentators have offered various explanations for the surge — from buyers loading up on XRP ahead of Ripple’s annual Swell conference, to a stress test on the network, a rogue trading bot, and even a whale splashing funds around in an attempt to manipulate the market.

BTC IOU testing

By analyzing publicly available XRP ledger metrics, investor ‘hallwaymonitor’ reached the conclusion that the surge in transaction volume derives from ‘BTC IOU testing‘ on the network.

Based on the publicly available data, the bulk of trading volume derives from BTC IOUs. These IOU tokens are processed on the XRP network in a similar way to XRP but are redeemable for bitcoin, or other fungible assets like gold or oil.

In the absence of any other explanation, the data suggests that the transactions might be from Ripple, who could be conducting testing with IOUs in BTC and willingly paying the fee for each transaction.

And, as the transactions were BTC IOUs, they are unlikely to be the result of a trading bot gone haywire.

A whale attempting to manipulate the market

Though testing is a plausible explanation, the timing of the transactions in the lead up to Ripple’s annual Swell conference suggests a different source. The conference will take place in Singapore on the 7th and 8th of November, and has historically coincided with increases in the XRP price leading up to the event.

One XRP analyst, operating under the Twitter pseudonym of HamEggsnSam, delved deeper into the XRP ledger metrics to find the real reason behind the surging transaction volume.

By plugging transaction IDs into block explorer Bithump, he was able to trace activity back to a single wallet that had processed almost 5000 transactions. This relatively new wallet was activated only a few days ago, suggesting the transactions are unlikely to be for "buying coffee" or day-to-day crypto trading.

Though the wallet is not registered to anybody and has no real-world identity, the funds can be traced back to their original source —Binance, and ChangeNOW — a non-custodial exchange where cryptocurrencies can be quickly swapped. This suggests the transactions are not the work of Ripple.

"It’s possible that it’s still a Ripple partner behind the volume," said the analyst, "but it seems less likely to me, because if this was a Ripple partner, why didn’t it come out of an over-the-counter exchange or one of the Xspring accounts?"

The most likely source of the transactions, he suggests, is a whale attempting to manipulate the market by wash trading to create the impression of buying activity. This could artificially drive up the price by giving the impression that insiders know about something secret to be announced at the upcoming Swell conference.

In total, several wallets have been identified with $6500 spread across them. These are said to have been wash trading the BTC IOUs in an "A->B then B->A" pattern, yielding "volumes just high enough to match the previous ATH."

The suspicious activity started with transactions on October 4th, with more transactions being made over the next few days until the perpetrator switched to bitcoin payments by sending BTC IOUs back and forth. "They likely burned through their XRP, and then decided to switch to a BTC issuance" so "they could keep processing transactions while burning the 20XRP reserve."

In response to the allegations, Ripple tech lead David Schwartz chimed in on Twitter, conceding that "one of the downsides to low transaction fees on the XRP ledger is that the cost to send lots of low-value transactions is negligible."

Nevertheless, while the increased transaction volume has triggered lots of speculation over the cause, it doesn’t appear to have impacted the price of XRP.

Swell takes place in Singapore, November 7-8.