Humor me a moment.

Let's start with something we can agree on:  Using a digital asset is not a new concept in finance.  Many examples abound; derivatives, equities, even IMF Special Drawing Rights (SDRs) are all represented by electronic equivalents of their assigned value.

Honestly consider how often you use a credit card instead of physical cash – all of these transactions are digital in nature, represented only by ones and zeros on a bank’s private ledger.

Now consider the next logical step:  Is it really that much of a stretch to accept the notion of decentralized, trust-less digital currencies?

Decentralized, trust-less currency will inevitably play a major role in the future of the world’s economic system.  Even Christine Lagarde, Director of the IMF recently noted1 that small nation-states may co-opt one of these new crypto-currencies as a legitimate central bank currency:Christine_Lagarde

“Instead of adopting the currency of another country – such as the US dollar some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0. So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy while being open to fresh ideas and new demands, as economies evolve.”
Because of statements like this from global leadership, banks are taking a close look at real-world usage of these new forms of digital value.

Ripple is the first US-based company to market a pragmatic, cost-cutting solution for banks by using a trust-less, decentralized digital asset.  They created the digital asset XRP in 2012, and conducted in-depth studies of how usage of this digital asset as a bridge currency will dramatically lower banks’ costs.2

The Use Case for XRP

The intricacies of how money flows through banks’ nostro accounts when transferring value across borders is a topic that can leave even seasoned members of the bank community weary; at its most basic incarnation, it involves the crediting and debiting of accounts in one country, and the debiting and crediting of accounts in a foreign bank.  In addition, the technique of transferring value for a customer across borders implies that the bank must hold some of that other country’s currency in reserve for just such an occasion.  All of these factors result in unused capital and additional costs for the bank.

Ripple has studied these issues in depth.cost_chart

They are intimately familiar with international banking regulations, nostro accounts, netting systems, and the entire end-to-end process that uses outdated technology to move money from one country to another.  In response, they carefully crafted a standardized approach to simplify the usage of either traditional fiat money or a digital asset, to move value easily and real-time across borders with all associated fees known in advance.

Real-time payments and fee certainty are key factors; the latest banking directives from PSD2 3 and the United Kingdom’s CMA 4 specify the importance of handling faster payments, with all costs known in advance.  These two points are where SWIFT’s GPI architecture falls short.

XRP Supply

Although we know that XRP can be leveraged by banks and other organizations to cut costs, using a trust-less digital asset also requires investment; part of the cost of using XRP will be acquiring or using this bridge currency.

XRP simplifies the transition of value from one currency to another, but just as US dollars have historically been used in this regard, banks and other financial institutions will also need to carefully consider the terms of XRP liquidity that Ripple introduces as part of its standardized offering.  Value must be transferred into and out of XRP; the high-impact factors of liquidity and volatility must be considered, along with supply and demand for this digital asset in whatever market is used to switch XRP to other currencies.

Ripple has studied these factors, and has thoughtfully cultivated an active market for XRP.

The cryptomarkets have reacted favorably to XRP and its use case, positioning XRP at the third spot for overall market capitalization.  While this has been its historical ranking in terms of capitalization, the converted dollar amounts of volume and market capitalization have been increasing dramatically over a short time.

The current market capitalization of XRP at the time of this writing is listed at $10 billion. 5

While the latest daily volume 6 of XRP is $328 million, XRP broke its previous volume record in august of this year, with one day’s trading exceeding $2 billion.  The market for XRP has seen explosive growth so far this year, and continues to grow steadily each month.

Basics of XRP Supply

For those that don’t already know, Ripple created 100 billion XRP in 2012.  There can never be any more than that – it’s actually written into the code of the XRP Ledger. 7

In addition to being used as a bridge currency, XRP fees are used as an anti-spam measure on its network.  Each transaction costs an extremely small amount of XRP; this is called a “burn rate” for the crypto-currency, and it’s why XRP is considered a deflationary asset.  As XRP is used for fees, it ceases to exist; this is why the overall current amount of XRP falls just shy of 100 billion, listed at 99,993,285,883.8  This implies that approximately 6.7 million XRP has been used in fees thus far.  The current minimum fee is “10 drops.”9  What is a drop?  A drop is defined as one millionth of one XRP.

The amount of the minimum fee can be adjusted by the amendment process if necessary.10

Escrow / Lockup

One of the ways that Ripple is encouraging the active trading of XRP is to restrict the supply of its digital asset.  It plans on locking up 55 billion XRP in a sealed, escrow crypto-condition on the XRP Ledger. 11

To understand the lockup, you should first understand how XRP is currently12 distributed:


That’s right – Ripple owns the lion’s share of XRP, while crypto investors and Ripple business partners own the other portion.  This distribution has historically been one of the reasons why some crypto investors have steered clear from adding XRP to their portfolio – the fear that large holders might suddenly flood the market with XRP and reduce the market price.

This notion goes against Ripple’s goal of creating an active market for XRP.

Ripple needs an active market to serve as liquidity for its standardized package that uses its digital asset as a bridge currency.  The company realized in 2017 that, despite their repeated public statements about their intention to carefully manage XRP supply, a more iron-clad approach was necessary to alleviate concerns.

In February of this year, the escrow functionality of the XRP Ledger was completed.13 This feature allows a user to send conditional XRP payments.  One of these conditions can be a specified date:  Once that date arrives, the XRP then becomes available.14  This function has other capabilities, but the date-based crypto-condition is one that many different financial companies and banks can use for various purposes.

And Ripple realized it could serve another purpose as well.

On May16th of this year, Ripple announced that it would voluntarily lock away 55 billion XRP in an escrow date-lock.  This cryptographically-sealed escrow will send 1 billion each month to Ripple, and any unused portion at the end of that month will then be locked away for 55 more months.15 This approach will result in an XRP distribution schedule that looks like the following chart:


This XRP supply chart allows fund managers and traders to calculate with certainty what the supply side of the XRP equation looks like;  This plan also provides Ripple the flexibility to strategically invest XRP in market development.

The cryptomarket reacted very favorably to this proposal, even though the XRP has not yet been locked away:  Ripple stated that they will create the escrow “by the end of 2017.”

XRP Demand

The demand for XRP has prompted dozens of worldwide exchanges to add the digital asset to their list of supported crypto-currencies.  At last count, there are 30 exchanges where XRP can be traded with other worldwide currency denominations and other crypto-currencies such as Bitcoin. 16

Each month, the global volume of XRP trading has increased; the demand for XRP is expected to continue this trend throughout 2017 and 2018, and the overall cryptomarkets have grown in size substantially17 since the beginning of 2017:


This trend is regarded as a steady but aggressively growing demand for trust-less, decentralized assets in general, and also XRP in specific, because of its potential to transform worldwide cross-border value transfer.

xRapid for XRP Cost Savings and Real-time Value Transfer

XRP Investors like me have been enthusiastically investing in the digital asset for some time, in anticipation of its use as a worldwide bridge currency.  Since 2012, Ripple has methodically added software tools to its portfolio of offerings, carefully laying the foundation for the usage of XRP to lower costs.

Ripple’s first standardized software product suite is known as xCurrent.  xCurrent supports the usage of Ripple’s messaging software and the Interledger Protocol for linking banks’ private ledgers to other banks and financial institutions, along with messaging functionality.18  xCurrent doesn’t require banks to use XRP; banks are able to use Ripple’s xCurrent for any currency they choose.

xRapid was then developed to provide a liquidity solution for banks that wish to use XRP to lower the costs of cross-border value transfer.19  This package of software allows xRapid_Logobanks and other financial institutions to finally capitalize on the cost savings that were originally predicted in Ripple’s whitepaper. 20

Just this week, Ripple announced their first production customer for xRapid: Cuallix.21 This company will use XRP to transfer value to customers in Mexico, specifically targeting payment amounts that fall into the micropayment range:

“Our business — and our customer’s livelihood — depends on our ability to send micro-payments easily and quickly to Mexico. With xRapid, we can source liquidity through XRP and complete the cross-border payments in seconds.”
While xRapid’s adoption is just beginning, it marks a milestone not only for Ripple and XRP, but also for the use of trust-less digital assets in general; it signals mainstream adoption of blockchain technology for value transfer, allowing the world to see what the future holds.

SWELL Will Provide a Forum for Educating Bank Partners

Ripple planned the SWELL conference to happen during the same time as SIBOS, in an effort to elevate the topic of blockchain technology to a more central role in international thought leadership.  Blockchain technology is no longer a novelty or experiment; after years of waiting, the world is ready for a change in the speed and cost of international value transfer.

The SWELL conference affords Ripple the opportunity to educate banks about how their offerings will fit within existing technology architecture.  One thing to keep in mind about Ripple; they are keenly aware of banks’ propensity for risk avoidance, balanced with the need to bring international payments infrastructure into the modern era.

The opportunity to present this technology on a world stage has been a long time in the making, but it’s finally here.

Store of Value and Market Utility

If you’re a crypto investor, it’s easy to focus solely on what makes XRP so revolutionary; its ability to facilitate the transition of value from one fiat currency to another; but it’s also wise to remember that as a simple “store of value,” its performance metrics far outclass anything else in the crypto space; Bitcoin takes more than an hour to settle a payment, and the transaction costs are very high.  Ethereum requires fifteen blocks to settle, usually requiring upwards of two minutes’ time.

Settlement Speed Settlement Speed

XRP settles in under four seconds. 22

To anybody who’s transferred Bitcoin from one exchange to another and had to wait an hour before being able to trade, XRP is head-and-shoulders better.  When time is of the essence for a crypto trader, XRP is the best alternative for real-time transfer and trading.

Last Word

Banking finds itself on the cusp of a transformational technology that leverages the strength and advantages of trust-less, decentralized digital assets.

In Toronto next week, industry leaders will meet with both legacy technology representatives from SWIFT, and the next generation of financial technology at SWELL.  Each interaction and meeting will occur in the midst of a historically significant turning point for the way in which financial information flows across borders.

The eyes of those in the cryptomarket will be watching as well.


Our fellow crypto investors will be examining the daily news from SWELL closely for indications of market trends and sentiment, with some hoping to make short-term profits; others will be measuring the potential of a unique opportunity for a long-term investment.

XRP is the leader among its peers in speed, scalability, and as a secure store of value.  Its market has shown explosive growth in volume and liquidity - all prior to Ripple creating the escrow lock-up of XRP supply.  Unlike some competing crypto investment choices, XRP’s value is based on solid use cases that describe a technology poised to transform international commerce. xrp


  5. (Snapshot on 10-10-2017)
  8. (Snapshot taken on 10-10-2017)