Evaluating Blockchain Ecosystems: A Three-Step Framework Using XRP as an Example

Phil Kwok, co-founder of EasyA, recently shared a detailed perspective on evaluating blockchain ecosystems in a series of tweets.

Phil Kwok, co-founder of EasyA, recently shared a detailed perspective on evaluating blockchain ecosystems in a series of tweets.

His insights center on a straightforward three-step framework designed to assess the sustainability of any blockchain, using XRP as an example. This framework emphasizes simplicity and experimentation, making it accessible to those new to blockchain technology.

Kwok underscores the importance of understanding the supply and demand dynamics of a blockchain’s native token. His framework examines three key factors: Supply, Demand, and Supply Shocks

how is $xrp valued at $180bn.

and how much further can it run?

i’m not in the business of speculating on price.

but as a builder.

i need to know whether an ecosystem is sustainable.

and i’ve developed a simple 3-step framework to analyse any blockchain.

a thread 🧵 pic.twitter.com/4PUOuYGBwF

— Phil Kwok | EasyA (@kwok_phil) January 19, 2025

Supply

Kwok begins by addressing the origins of token supply and its potential for inflation. Tokens generally enter circulation through initial launches and inflationary mechanisms. Inflation, which involves the creation of new tokens, can exert downward pressure on a token’s value due to increased market supply.

XRP, however, is distinct in this regard. At its launch, 100 billion XRP were created, and no more can ever be minted, making it a zero-inflation token. Furthermore, XRP is deflationary because transaction fees, paid in XRP, are permanently burned, reducing the total supply over time.

However, Kwok highlights an important nuance: Ripple, the company closely associated with XRP, was initially allocated 80 billion XRP. These holdings can be sold on the market, introducing periodic selling pressure. While this is not inflationary, it is a factor to consider when analyzing XRP’s supply dynamics.

Demand

Demand is the cornerstone of a token’s value, distinguishing utility tokens from speculative or memecoins. According to Kwok, XRP’s demand stems from multiple sources:

Transaction Fees: The XRP Ledger requires users, including institutions like JPMorgan, to pay fees in XRP. These fees are subsequently burned, creating inherent demand.

Cross-Border Payments: XRP is integral to facilitating rapid, cost-effective cross-border payments. By serving as a bridge currency, XRP enables seamless conversion between fiat currencies (e.g., Japanese yen to euros). This utility positions XRP as a solution for the multi-trillion-dollar global payments market, providing faster and cheaper transactions than traditional systems.

Emerging Use Cases: Kwok also notes the potential for increased demand through new developments, such as the integration of automated market makers (AMMs) and decentralized identity solutions on the XRP Ledger. These innovations may encourage users to lock or utilize XRP in new ways, further enhancing demand.

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Supply Shocks

Supply shocks, though less applicable to XRP than other blockchains, involve mechanisms that restrict the circulating supply of tokens. Kwok references examples like staking on Ethereum or Polkadot, where tokens are locked for extended periods, reducing market liquidity.

While XRP does not currently employ similar mechanisms, Kwok acknowledges that amendments to the XRP Ledger, such as AMMs, could introduce analogous dynamics over time.

Kwok’s framework provides a practical approach for builders and blockchain enthusiasts to evaluate the sustainability of blockchain ecosystems. By applying this methodology to XRP, he highlights its deflationary supply model, strong demand drivers, and potential for enhanced utility through ongoing development.

However, he emphasizes that this framework is not intended for price speculation or investment advice. Instead, it serves as a tool for assessing the long-term viability of a blockchain and its ecosystem.

Kwok concludes by inviting feedback to refine this framework further, fostering collaboration within the Web3 community to create a robust guide for blockchain evaluation.

: This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses.

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