Evernorth’s XRP listing faces Ripple-related accounting hurdle

Evernorth is preparing to begin trading on Nasdaq under the ticker XRPN with approximately 473 million XRP in its corporate treasury. The company expects its shares to start trading on Oct. 12.

Evernorth completed its merger with Armada Acquisition Corp. II on Oct. 9. The transaction generated about $300 million in gross cash proceeds before expenses. Investors include Ripple, SBI Group, Pantera Capital, Kraken and GSR.

Chief Executive Asheesh Birla said Evernorth plans to deploy capital across the XRP ecosystem rather than rely mainly on an increase in the token’s price. Its activities may include institutional and decentralized finance strategies, ecosystem participation, liquidity provision and capital-markets transactions.

In a shareholder letter dated Oct. 9, Birla described financial markets based on blockchain networks that can support continuous trading and settlement. Tokenized securities, credit and other assets could include programmed terms for interest payments, lending and transfers, he wrote.

Evernorth plans to provide liquidity on the XRP Ledger and work with developers building financial applications for institutional users. These applications could involve tokenized securities, lending and collateral management. Their effect on XRP demand will depend on how the company deploys its capital and whether the applications use XRP.

Evernorth’s accounting treatment is linked to its relationship with Ripple. The company stopped being a wholly owned or consolidated Ripple subsidiary after the merger, but management determined that the two companies remained related parties.

Accounting rules adopted by the Financial Accounting Standards Board in 2023 generally require qualifying crypto assets to be measured at fair value. Unrealized gains and losses are recorded in earnings under that method. The rules exclude certain digital assets created or issued by a reporting company or its related parties.

Evernorth therefore plans to account for its XRP at historical cost, reduced by accumulated impairment losses. If the token’s value falls significantly, the company may record an impairment charge. If XRP later recovers, the previous write-down generally cannot be reversed while the holdings remain under that accounting method.

In merger disclosures, Evernorth said XRP’s lowest observable price on Coinbase between July 1 and the Oct. 9 closing was $0.99. That price would have resulted in an additional $6.9 million impairment after June 30. The filing did not state whether the company ultimately recorded the amount.

The accounting method does not prevent Evernorth from benefiting from higher XRP prices, selling tokens at a gain or earning income from treasury strategies. Its reported earnings and book value may differ from those of crypto treasury companies that use fair-value accounting.

Evernorth has said it intends to increase the amount of XRP backing each share. Its first financial statements after the merger will report its holdings, treasury income and any impairment charges under the Ripple-related accounting treatment.