The concept of an XRP supply shock has generated discussion recently, but two analysts state that most investors misunderstand the actual mechanics. EasyA co-founder Phil Kwok and veteran Bitcoin investor Pumpius outlined how supply shocks develop and why current price stability may mask underlying structural pressure.
Kwok argues that genuine supply shock begins when XRP exits the open market through various channels. Decentralized finance will serve as one of the primary drivers of this process, according to his analysis. DeFi protocols lock tokens into systems where they cannot easily return to exchange order books.
DeFi Systems Remove Tokens From Trading Pool
Liquidity pools, lending markets, collateral systems and staking mechanisms gradually absorb tokens, reducing liquid supply available to traders. Kwok stated that DeFi layers on XRPL matter because these ecosystems create an early structural squeeze on circulating supply as they expand.
Pumpius outlined several mechanisms that remove XRP from circulation. Spot ETFs must purchase actual tokens rather than futures or synthetic exposure, meaning issuers buy directly from markets and pull liquid supply off exchanges. As these products attract inflows, they steadily drain available inventory.
XRP ETFs have purchased approximately $906 million worth of tokens following inflows exceeding $850 million recently. This equals nearly 500 million XRP removed from public supply through ETF products. For a supply shock to materialize, this absorption must occur faster than new tokens can replace withdrawn inventory.
Banks, asset managers, settlement providers and custodians generally do not actively trade their XRP holdings. These entities hold tokens for payment rails, corporate settlement flows, or long-term treasury positioning. Once institutions custody XRP, these tokens exit the circulating pool and sit in cold storage or operational accounts rather than on exchanges.
