Ripple charges a 2x Sandisk ETF about 8% a year to finance its leverage

A fund promising twice Nvidia's daily return can sign a total return swap instead of buying twice its assets in Nvidia shares. The broker on the other side supplies the exposure, typically hedges by buying the stock, and collects a financing fee ^[4]. Leveraged ETFs reset daily ^[13], so a 2x fund starts each session with exposure equal to twice its assets. A 50% fall in the underlying within that session takes the fund to zero ^[16]. Past that point the fund owes more than it holds. A broker's share hedge offsets the market move, but it does nothing about a client that cannot pay ^[13].

The Sandisk fund's rate, as the Journal reported it, is the overnight bank funding rate plus four points, about 8% at prevailing rates ^[5][6]. The benchmark supplies roughly 4 of those points and Ripple's markup the other 4 ^[15], before whatever Ripple pays to fund the shares it holds as a hedge. Earning back the $1.25 billion Hidden Road price ^[2] from that markup alone in one year would take about $31 billion of swap exposure ^[18]. In 2x funds that is about $15.6 billion of assets ^[19], roughly 6% of the $256 billion held by every US leveraged ETF combined ^[10][20]. Hidden Road also clears and finances bonds, currencies and digital assets as well as stocks ^[3]. This one product does not have to repay the deal by itself.

Part of the growth is borrowed. Ripple completed a $275 million senior debt offering to help pay for it ^[8]. The Delta One business it launched in August offers swaps on US stocks, indexes and digital assets ^[12]. Ripple has not disclosed how much revenue the leveraged ETF financing generates, or how much of the activity uses XRP or the XRP Ledger ^[14].

Ripple could keep the ETF book small, an add-on to the clearing and financing operation it bought with Hidden Road ^[3]. The book could also grow toward the size the purchase price implies, and growth here runs through single stocks: 426 of the 593 US leveraged funds, about 72%, track one company ^[10][17]. A third outcome is XRP Ledger use large enough to make this a crypto business in more than its ownership ^[14].

I think the second path is the likely one. A four-point markup matters against $1.25 billion only at scale, and in this market scale means more single-stock gap exposure set against the same capital. The counter-thesis is that this is ordinary nonbank prime brokerage: banks pulled back under tighter capital and risk requirements, and Jane Street and Clear Street moved into the same work ^[11]. A disclosure that the ETF swap book is small relative to Ripple's net capital would show the risk side of this view to be overstated.