Cryptocurrencies have been on fire lately, and the gains have gone far beyond bitcoin (BTC-USD). Many people are just hearing about competing entrants in the crypto space, and some of their gains have put bitcoin's rise in 2017 to shame.

One of the best performers last year was ripple (XRP-USD), a rival cryptocurrency that quickly climbed to become the No. 2 player in the market by total value of outstanding tokens before falling back at the beginning of 2018. Unlike bitcoin, ripple has a company behind it -- Ripple Labs -- that has been instrumental in developing the open-source payment network. Many investors who are optimistic about blockchain technology but dubious about trading in cryptocurrencies themselves want opportunities to invest in the companies behind tokens like ripple, and that's drawing speculation that Ripple Labs could file to go public in the coming year. Let's take a closer look at Ripple Labs and whether it would make a good IPO candidate in 2018.

Concentric circles with lines emanating outward, with the circles containing a five-year Happy Anniversary message about the XRP ripple cryptocurrency.

Image source: Ripple.

Insiders might want a Ripple IPO

Ripple Labs has attracted high-profile interest during its short history. Just after its founding in 2012, Ripple Labs did a private placement, raising more than $2 million in a seed round of funding in April 2013. Influential investors such as Andreessen Horowitz, Lightspeed Venture Partners, and a fund managed by Peter Thiel's Founders Fund participated in the seed round.

Subsequent funding rounds brought in even more investors. Later in 2013, Google Ventures and IDG Capital Partners were among those investing undisclosed figures in Ripple Labs. By late 2014, Ripple Labs had announced a $32 million deal for further funding, issuing common stock to existing investors and putting a $100 million valuation on the business. The deal closed in late 2015, with 28 investors eventually participating, including CME Group (CME -0.42%), Seagate Technology (STX), and a fund associated with Banco Santander's (SAN -0.62%) U.K. unit.

The most recent round in 2016 brought in $55 million. CME, Seagate, Santander, and others participated in the series B round, with Ripple Labs saying it would use proceeds to accelerate customer growth, pursue strategic partnerships, and expand its team internationally.

The current stakes of these parties is unknown publicly. However, any venture capitalist is always looking for ideal times to realize profits. Going public is a time-honored way for early investors to cash out, although the trend in recent years has been to delay IPOs longer into the development of an up-and-coming company to maximize the amount of pre-IPO gains for ground-floor investors.

What Ripple Labs management thinks

Ripple Labs CEO Brad Garlinghouse has addressed the question of a Ripple IPO head-on. When asked in September 2017 on CNBC  what the pros and cons of a Ripple IPO would be, Garlinghouse said, "I want to make sure we have the right managerial maturity, infrastructure, and ability to forecast properly. ... At some point it will make sense. Just not today."

How much more progress would be necessary before Garlinghouse and other executives might be more comfortable with an IPO isn't entirely clear. Yet one thing that potential IPO investors would want to understand more fully is the business case for Ripple Labs as an entity separate from the success of ripple (XRP-USD). Currently, many cryptocurrency investors assign just about all of the value of Ripple Labs to the ripple that it controls. To justify an IPO, Ripple Labs would need to demonstrate its ability to profit from its work beyond simply participating in any price gains of ripple itself.

Why wouldn't Ripple do an IPO?

Apart from the potential desire of existing investors to retain their full stake in Ripple Labs, there's at least one ongoing issue that could delay an IPO. The company is currently embroiled in litigation with a consortium of banks known as R3. According to court filings, R3 and Ripple Labs made a deal that involved granting R3 an option to purchase 5 billion ripple (XRP-USD) at a price of less than $0.01 per XRP. Given the appreciation in the value of the cryptocurrency, that option could be worth well in excess of $10 billion.

Both R3 and Ripple Labs are vigorously fighting a back-and-forth legal battle. Given that the option covers 5% of the total potential supply of ripple in existence, the uncertainty of the outcome could lead company officials to feel uncomfortable with any plans to go public until the two litigants can reach a final resolution.

Keep your eye on ripple

Ripple's low price and visible use case make it an attractive cryptocurrency right now. Yet for Ripple Labs, looking for an IPO to cash in on the popularity of ripple in 2018 seems a bit premature. With so much potential for further development, it's likely that Ripple Labs' investors will hold off on any moves toward going public until ripple becomes a much better-known player not just among crypto followers but in the mainstream investment community as a whole.