Ripple has had a lot of great news lately with various financial institutions (FI’s) beginning to use Ripple tech. Ripple has definitely started running the marathon CEO Brad Garlinghouse said it would run. Unfortunately, most digital asset investors seem disappointed in these announcements because the FIs have primarily been announcing their use of xCurrent, which does not require the use of XRP, versus xRapid, which does require the use of XRP. The fear, uncertainty, and doubt present in the digital asset community, every time one of these announcements is made, come out with strong force, usually with a statement such as “XRP will NEVER be used by banks!” If I could only collect one XRP for every time I have to read that statement I would probably be a “zerpillionaire” already.
The xCurrent Users
The most recent xCurrent announcement came to the crypto world on February 21, 2018. With this announcement three more banks have signed on to use xCurrent: "Itau Unibanco, Brazil's largest private sector bank and Latin America's biggest bank by market capitalization; IndusInd, a leading private sector bank in India; and InstaReM, a major remittance provider based in Singapore." Additionally, two xVia users were announced: Beetech in Brazil and Zip Remit in Canada, "will both use xVia to open payment corridors for their customers around the world."
Previously, on February 14, 2018, an announcement brought the Saudi Arabian Monetary Authority (SAMA), the central bank for the Kingdom of Saudi Arabia, into the RippleNet/xCurrent family. The importance of this partnership cannot be understated: while SAMA is not the first central bank to use xCurrent (the Bank of England gets that honor), SAMA is the first to “use xCurrent to instantly settle payments sent into and out of the country, with greater transparency and lower costs” with all of their participating banks. This means that SAMA is going to be working with all of its banking partners to implement xCurrent for payment settlements. This is not just a one-off banking partner, but an entire banking system for a very wealthy country! “But it’s just xCurrent. Banks will never use XRP!”
Prior to SAMA, Ripple also announced partnerships with UAE Exchange, American Express and Santander UK, SBI Holdings, Inc., forming SBI Ripple Asia to reach the Asian banking market, and more than 100 other FI’s across the globe. “But it’s just xCurrent. Banks will never use XRP!” Yeah, I know….
Have you ever tried to send money to someone in another country? I do every month. And my options are limited. Currently, I use Western Union (who just recently announced a Ripple partnership testing xRapid/XRP) to process these transactions. When sending the money I have two options. I can send the money for a low fee ($4) using a bank account transfer, which takes approximately four business days to settle, or I can send the money using a debit/credit card for a fee that is almost three times as much ($11), but, will reach my intended recipient within minutes. The trade-offs are obvious: pay less, but take longer to process the transaction, or, pay much more to get the transaction done in minutes. What if there were another way?
Sending Value with Digital Assets
I have been searching for a way to make the transfers I do every month faster and less expensive. While this is not a piece about the attributes of xRapid/XRP, one cannot overlook the significance of fast transaction time (3-5 seconds) and inexpensive fees (less than $.01) if one were able to make a similar transaction using XRP solely, such as sending XRP from my wallet to their wallet. At this time my friends in the Dominican Republic have no way of exchanging the XRP I could send them into Dominican Pesos (DOP), the local fiat currency, for use. There is not an exchange that I have been able to find that offers XRP/DOP pairs.
What can I do? How is it possible to send value using digital assets to my friends in the Dominican Republic? Let’s look at an example:
I could purchase XRP using USD on my preferred exchange. I could then send that XRP to their personal wallet. At this point, my friends would exchange their XRP for BTC. But, we are still stuck with the BTC/DOP pair issue. No need to fret (that was sarcastic…this next part may make you fret even more), there is a solution: www.localbitcoins.net. Using this website my friends can connect with an individual buyer of BTC, place a sell order, which places the BTC in escrow until the buyer confirms payment has been sent to my friends, at which point they can release the BTC to the buyer. This exchange will cost another 4% of the value I transferred due to exchange rate differences. All this sounds easy, right (please remember my sarcasm above)?
Imagine You are an FI
Think of the above scenario but, instead, you are an FI that wants to send value using XRP from your country to the Dominican Republic. You want to use xRapid but using the above scenario, finding liquidity for XRP/DOP is non-existent. Sending value to the Dominican Republic using XRP just is not feasible at this point because of the lack of liquidity for XRP/DOP, especially for a company who wants to send thousands or millions of dollars in value across the border. Why would an FI want to use XRP at this point, unless they can provide their own liquidity on both sides of the trade? What should an FI do? Keeping the status quo seems the best option, but it is not the way of the future. Here’s where xCurrent enters the picture.
xCurrent for Building Liquidity Corridors
xCurrent would allow you, as an FI, to settle your cross-border transactions into the Dominican Republic. You do not have to use XRP (though you could) with xCurrent. Instead, you can deploy xCurrent to send the value(s) you wish to send, in seconds, using your current liquidity options. Here is where it gets interesting: as more FI’s begin sending money in-to and out-of the Dominican Republic using xCurrent they will begin to see the necessary liquidity become available that will allow them to use xRapid/XRP as an efficient and less expensive settlement option. Additional liquidity will be provided by Market Makers who see the increase in XRP/DOP use and who will begin trading in the XRP/DOP pair. xCurrent, in this example, allows FI’s to build the corridor necessary for using XRP before being required to use XRP in an environment with low liquidity.
It's Already Happening
The February 21, 2018 partnership announcement mentioned above has an important statement regarding the establishment of liquidity corridors. Speaking of Beetech and Zip Remit, Ripple states, "Additionally, both will look to establish a connection for their customers into China, an opportunity that is now possible thanks to the recent addition of LianLian International to RippleNet earlier this month." Every new partnership announced, even if that partner is using xCurrent or xVia, builds liquidity between those RippleNet connections.
In the last 24-48 hours an exchange called Coinsph in the Philippines has launched the XRP/PHP trading pair. While this may not seem significant to the digital asset community, it is one more XRP/fiat pair needed to build liquidity on a global scale so that xRapid and XRP can be used efficiently, as designed. XRP/PHP is one more pipeline opening up for XRP to be used. Now I can send value, utilizing digital assets, and specifically XRP, to the Philippines without the need to find a personal buyer for my XRP. Now, an FI can begin to source liquidity for XRP in the Philippines so they can be more competitive in the global markets.
For xRapid to be used the way the XRP community wants it to, xCurrent is the first stepping stone. xCurrent opens the door to begin building the liquidity corridors necessary for XRP to flow through. Without these established corridors, those who say “Banks will never use XRP!” are right. What FI would ever want to send thousands or millions of dollars in value to a country where they cannot exchange XRP for the local fiat? The answer is simple: none.
There are currently 180 circulating currencies recognized by the United Nations. These currencies generate over $5.3 trillion (yes, with a “t”) in trading every day. If XRP is going to succeed, liquidity must be able to be sourced from the vast majority of these currencies using XRP/fiat trading pairs. xCurrent is the gateway that opens the doors of opportunity for that liquidity to be sourced. Is there any other digital asset that has an enterprise option to build liquidity for the asset before users must take on the full risk of using that digital asset? Ripple has provided an option for FIs and other companies to begin using distributed ledger technology without the inherent risks involved with limited liquidity and market volatility, all while positioning xRapid and XRP as the next logical step once liquidity has been established and volatility can be more easily controlled.
The Next Announcement
The next time you hear Ripple announce another partner that is using xCurrent, do not be dismayed. Realize that Ripple is doing exactly what it should: building another corridor for XRP liquidity. And when you hear all those with fear, uncertainty, and doubt say, “But it’s just xCurrent. Banks will never use XRP!” you can just smile, consciously aware that the XRP game plan is being played perfectly, knowing that XRP needs xCurrent to succeed.
**In full disclosure, I own XRP. This is not investment advice.