Is Chainlink Going to Be the Next XRP?

Key Points

• XRP and Chainlink are both cryptocurrencies targeted at financial institutions.

• That doesn't mean they look to solve the same problems for users.

• It also doesn't imply that one is competing with the other.

• 10 stocks we like better than XRP ›

Apples and oranges can't be directly compared, yet the fact that they're both considered to be fruits means that at least a few comparisons are inevitable, even if they lack rigor.

At least in many conversations among investors on social media, that's what's going on with the cryptocurrencies XRP (CRYPTO: XRP) and Chainlink (CRYPTO: LINK). The gist of the online chatter is that Chainlink could be the next XRP in terms of its growth potential, due to its supposedly superior positioning.

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The comparison between these two coins is, much like talking about apples and oranges, quick to make -- but it isn't actually accurate. The right approach for investors isn't to think about picking a winner from two substitutes, but rather to understand how each asset earns its keep.

Let's unpack a few details about both cryptocurrencies, to get a clearer idea about whether one coin could actually supplant the other.

Image source: Getty Images.

These coins have different niches

Chainlink aims to be crypto's data and messaging plumbing by providing data oracles to blockchains, but it isn't a blockchain itself.

In this case, you can think of data oracles as automated services that take information from the world outside of cryptocurrency, like stock or commodity prices, and then import it such that on-chain programs and smart contracts can use the data feeds for their own (also automated) purposes. This is why companies keep piloting with Chainlink -- for instance, to make mutual fund price data available in the blockchain world.

Because oracles are digital infrastructure, the right metric is how much value their data touches or "secures." On that front, Chainlink leads the oracle market by total value secured (TVS) with $57.9 billion. That's a 61.5% share of the market. It's a sign that many protocols and institutions already rely on Chainlink.

XRP is a very different beast, at least per the plans of its issuer, Ripple.

The XRP Ledger (XRPL) and Ripple's products aim to be financial plumbing for cross-border money movement by financial institutions. That includes using XRP as a bridge asset, and also increasingly using stablecoins, including the Ripple USD (CRYPTO: RLUSD) issued by Ripple, as the main payment rail on the network.

Ripple markets that entire service stack directly to institutional investors who want faster settlement times and lower working capital needs than what they're able to accomplish with legacy technology. The XRPL also bakes in compliance-friendly capital controls for asset issuers, including a few features that help institutions meet know-your-customer (KYC) and anti-money laundering (AML) obligations without the need to build any custom smart contracts.

Furthermore, XRP operates at a dramatically larger scale than Chainlink. This is in part because it's a blockchain with a quickly growing ecosystem of projects, rather than being a single project like the other coin is. As of today, XRP's market cap is roughly an order of magnitude larger than Chainlink's, which underscores that these assets operate in different weight classes and appeal to different buyers. XRP's market cap is near $181 billion, whereas Chainlink's is $17 billion.

Data oracles and cross-border settlement rails solve different problems for different customers, and these two coins are at very different points in their adoption curve. That means there is little reason to expect Chainlink to siphon meaningful capital away from XRP's institutional base. This is not a zero-sum match-up.

Could Chainlink still make a big run like XRP did?

Now, let's move on to the question of whether Chainlink's future could see it delivering gargantuan returns like XRP did, even if its growth will be derived from wholly different sources. For reference, over the last three years, XRP's price rose by 710%, whereas Chainlink's grew by 218%.

In short, there is indeed a scenario where Chainlink rallies quite hard.

In this scenario, it would continue to be the default interoperability and data layer as real-world assets (RWAs) become tokenized and migrate on-chain. If large financial organizations implement their tokenized asset programs by bringing data on-chain using Chainlink, it'd create a big influx of demand for the coin.

Assuming asset tokenization keeps scaling, a larger and larger share of on-chain activity will depend on neutral data delivery. And that's exactly Chainlink's wheelhouse. So it's reasonable to expect it to continue to grow fairly rapidly, at least until there's evidence that one of its numerous competitors is starting to eat its lunch.

So, given all of the above, what's the right way to think about the idea of Chainlink becoming the next XRP?

You should see it as a category mistake. Chainlink is middleware for data and interoperability. XRP is payments and settlement infrastructure. One of these things is not like the other.

Ignore the idea that Chainlink must cannibalize XRP, or the other way around. These coins can coexist, and both are worth owning.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chainlink and XRP. The Motley Fool has a disclosure policy.