thecryptobasic.com
The idea of an XRP “supply shock” has been widely discussed recently, but two analysts say most investors misunderstand what it actually means.
EasyA co-founder Phil Kwok and veteran Bitcoin investor Pumpius have explained how a supply shock occurs and why XRP’s stable price today could be masking underlying pressure in its structure.
Why DeFi Is the First Trigger
In his commentary, Kwok argues that a real supply shock begins when XRP is removed from the open market. He notes that decentralized finance (DeFi) will be one of the biggest drivers of this process.
According to Kwok, DeFi locks XRP into systems where it cannot easily return to exchanges. Liquidity pools, lending markets, collateral systems, and staking-based incentives gradually absorb tokens, reducing the liquid supply available to traders.
Kwok explains that this is why DeFi layers on the XRPL matter. As these ecosystems grow, more XRP becomes locked in DeFi systems, creating an early structural squeeze on supply.
Spot ETF Demand Drains Exchanges
Meanwhile, Pumpius expands the argument by outlining several real-world mechanisms that remove XRP from circulation. The first is spot ETFs.
Every XRP spot ETF must purchase actual XRP tokens, not futures or synthetic exposure. This means ETF issuers buy directly from the market, pulling liquid supply off exchanges. As these products attract inflows, they steadily drain inventory.
For a supply shock to form, he says, this absorption must happen faster than new tokens can be replaced.
Notably, XRP ETFs have already purchased $906 million worth of XRP, following inflows exceeding $850 million this week. This is equivalent to nearly 500 million XRP being removed from public supply through ETFs.
Institutional Holdings Remove Tradable XRP
Pumpius also notes that banks, asset managers, settlement providers, and custodians generally do not actively trade XRP. Instead, they hold it for payment rails, corporate settlement flows, or long-term treasury positioning.
Once institutions custody XRP, these tokens are effectively removed from the circulating pool. They sit in cold storage or operational accounts, not on exchanges. This is another mechanism that gradually tightens liquidity.
Furthermore, as more companies adopt XRPL corridors for cross-border settlement, their treasuries will begin holding XRP as working capital. These funds are parked, not traded, further reducing available supply.
Escrow Discipline Limits New Supply
Pumpius highlights that Ripple’s escrow behavior also contributes to supply restriction. Ripple has no incentive to flood the market with new tokens, and unused XRP is regularly returned to escrow.
This controlled release schedule reduces the net new supply entering circulation.
Utility Layers Absorb XRP Permanently
Beyond investors, on-chain utility is another significant source of long-term absorption. Pumpius cites examples, including:
- Tokenized funds
- Stablecoins such as RLUSD
- Liquidity pools and automated market makers
- Payment corridors
- Identity layers
- Enterprise settlement rails
Each system requires XRP to operate, so tokens are locked up instead of being traded. This is where DeFi, tokenization, and infrastructure growth work together to tighten supply.
As zero-knowledge identity systems arrive on the XRPL, more XRP will be used for identity verification and proof systems. These tokens remain in functional systems instead of trading markets. Pumpius calls this a “structural” lock-up that further reduces long-term supply.
What This All Means for XRP Price
When all these forces — ETF demand, institutional custody, DeFi lock-up, corporate flows, escrow discipline, and expanding utility — combine, exchanges gradually bleed inventory. OTC desks tighten, and liquidity thins.
Buyers are then forced to compete for a shrinking pool of available XRP, causing the price to revalue sharply.
Pumpius notes that supply shocks do not announce themselves. They form slowly and invisibly, only revealing themselves abruptly through sharp upward price movement.
According to both analysts, the quiet period the market is experiencing today is not a sign of weakness. Instead, it represents the pressure building before the system recalibrates XRP’s value.