Ripple Escrow Reporting: Creative Accounting or Much Ado About Nothing?

On May 16, 2019, Coin Metrics released a report detailing discrepancies in Ripple's escrow reporting system.

Back in mid-December 2017, Ripple published a document detailing the mechanisms by which its XRP escrow account worked.

"Two quarterly markets reports under-reported the number of XRP released from escrow by a total of 200 million XRP.The 'escrow queue' is implemented differently than announced, leading to a faster future release of escrowed funds compared to the announced schedule.Other party/parties, potentially associated with Ripple, have released 55 million XRP from an unknown escrow address not connected to the main Ripple escrow account."

Per its own guidelines published in 2017, every unused XRP released from escrow on a monthly basis would be returned to the escrow account from the back of the queue.

"Any additional XRP leftover each month will be placed into a new escrow to release in the first month in which no escrow currently releases."

"We tweaked the timeline in 2018 to reflect transactions that happened each month of the quarter rather than linking returns to date of initial escrow release. Ex: a March escrow release returned in April is considered a Q2 event, not Q1. We plan to add some additional language in future markets reports in our continued efforts to be the most transparent in the industry."

Thus, at the time of Ripple publishing its quarterly report, it will be 100 million XRP behind, even though the balance exists on the on-chain Ripple ledger as having already returned to the company's escrow.

According to Coin Metrics, the total net amount returned to escrow so far as recorded by on-chain data and the various quarterly reports differs by 200 million XRP.Of the 17 billion XRP released from escrow since Dec. 16, 2017, on-chain data shows 12.5 billion XRP returned to escrow.

"The alleged discrepancies in Ripple's escrow reporting may impact XRP's price negatively unless Ripple publicly explains them in due time. One of the pitfalls of a centralized system is a lack of transparency and Ripple's control over XRP is an example of this. If Ripple wants XRP to gain global adoption it needs to work towards building trust and transparency is the first step towards that."

By controlling supply, Ripple effectively plays a great role in determining the price of XRP. The question still remains about whether these discrepancies are simply a timeline issue or an example of creative accounting on behalf of the company.