Topic: Why Ripple is important in a diversified crypto portfolio (Read 821 times)

It only costs a tiny fraction of a ripple to do a trade, and I think there's a way to do it at no cost too. If all the banks adopted it the price wouldn't go up because of ripple trading fees. It's unlikely all the banks would adopt it anyway, instead they would clone it and use their own private network.

There are several ways that XRP provides utility value to the Ripple payment network.

Security - Each transaction submitted through the Ripple payment network must pay a transaction fee, similar to putting a stamp on a letter before sending it through the postal network. The idea is that putting a monetary cost on each transaction will deter a network attack with 1000s of spam transactions... The TX fee also increases in the face of an attack, so imagine trying to drop off a basket of junk mail at the post office, and being told, the postage just went up 10x for each letter. This monetary deterrent provides the whole network some level of security and is paid in XRP, giving XRP utility value.

Bridge Currency - Perhaps one of the most exciting aspects of XRP. I believe that Auto-Bridging went into effect with the RipplD version 0.28.00. With Auto-Bridging any two currencies are only 2 hops away from a successful FX conversion. So if two pairs of IOUs do not have a direct orderbook between the pair, however both have an orderbook to XRP then the trade can go IOUa > XRP > IOUb this simplifies the work load on the network and enables Liquidity to reach IOU pairs that would otherwise be siloed. See XRP as a bridge on the right.

No Counterparty - XRP is the only asset in the Ripple payment network that is not backed by an issuer. So everything on the Ripple ledger is either XRP, or an IOU issued by a real world entity, acting as a Gateway, such as a bank. Not being issued by a counter party, XRP has limited risk (*) credit risk, which makes it the only asset that could play the role of a bridge currency. This also makes it a "bearer asset", which cannot be Frozen or Non-Redeemed like an IOU can.

XRP’s Role on Ripple as a Bridge Currency

Ripple enables banks to settle cross-border payments in real time, with end-to-end transparency, and at lower costs. Banks choose to either provide liquidity for FX themselves or source it from third-parties.

As Ripple adoption grows, so do the number of currencies and counterparties. Liquidity providers need to maintain accounts with each counterparty for each currency – a capital- and time-intensive endeavor that spreads liquidity thin. Further, some transactions, such as exotic currency trades, will require multiple trading parties, who each layer costs to the transaction. Thin liquidity and many intermediary trading parties make competitive pricing challenging.

Liquidity providers can bridge any currencies directly through XRP in a trade. Similar to USD in today’s currency market, XRP enables liquidity concentration around fewer pairs, creating order book thickness and competitive FX rates, especially for exotic currency pairs. Unlike USD, trading through XRP does not require bank accounts, service fees, counterparty risk, or additional operational costs. By using XRP, liquidity providers can specialize in certain currency corridors, reduce operational costs, and ultimately, offer more competitive FX pricing.

Good point, what's the business model of Ripple?

How will the tokens become valuable?

The trouble is even if this fairly unlikely scenario of large numbers of banks starting to using Ripple came about, there is no direct correlation between the use of Ripple IOUs for things like USD transfers and XRP having any significant value.

For XRP to justify even its current price let along a significant rise, it would need to be used as a market making currency for lots of trades (eg Euro > XRP > USD) but I really don't see that happening when people can just create direct exchange markets (eg Euro > USD) and reduce their costs and risks.

The trouble is even if this fairly unlikely scenario of large numbers of banks starting to using Ripple came about, there is no direct correlation between the use of Ripple IOUs for things like USD transfers and XRP having any significant value.

For XRP to justify even its current price let along a significant rise, it would need to be used as a market making currency for lots of trades (eg Euro > XRP > USD) but I really don't see that happening when people can just create direct exchange markets (eg Euro > USD) and reduce their costs and risks.

In July 1944, just weeks after the successful Allied invasion of Normandy, hundreds of delegates from around the world gathered in Bretton Woods, New Hampshire to determine the future of the global financial system.

The vision was simple: America would be the center of the universe, and every other nation would revolve around the US.

This arrangement ultimately led to the US dollar being the world’s dominant reserve currency which still remains today.

Whenever a Brazilian merchant pays a Korean supplier, that deal is negotiated and settled in US dollars.

The way international bank transfers work now relies exclusively on the US financial system.

Large foreign banks have what’s called a “correspondent account”, typically at a major US bank like JP Morgan, Citibank, etc.

A correspondent account is essentially a bank account for other banks. Our company holds funds at a bank in Singapore, for example, whose US dollar correspondent account is at Bank of New York Mellon.

Foreign banks’ US dollar correspondent accounts are typically at major Wall Street banks because that’s the epicenter of US dollar transactions.

So when a bank in Australia sends US dollars to a bank in South Africa, that payment actually flows from the Australian bank’s correspondent account in the US to the South African bank’s correspondent account in the US.

The entire transaction effectively takes place using the US banking system.

Again, this gives the US government enormous power over foreign banks. Any foreign bank that doesn’t do what Uncle Sam commands can be excommunicated from the US banking system.

And without access to the US banking system, a foreign bank will be unable to transact in US dollars, and hence unable to conduct any global business.

This is a death sentence for a bank. The US government knows this and has been blackmailing global banks for years.

But now technology is providing another option.

Banks don’t have to use the US banking system anymore; they can send real-time payments internationally using the Ripple protocol.

Just this morning a group of 15 banks in Japan signed up to start using Ripple, and dozens of banks plan to use the protocol within the next six months.

The technology is cheaper. Faster. Superior. And it doesn’t come with any US government strings attached.