Ripple’s [XRP] xRapid Solution Provides High Liquidity for Cross-Border Payments
The team behind Ripple have published a new blog providing old and new investors with all the details regarding its liquidity solution through xRapid.
According to the Financial Times, it defines liquidity as how easy it is to perform a transaction in a particular security or instrument without changing its value too much.
For domestic transactions, liquidity is typically high as financial exchanges execute the transactions in one single currency. They are also generally approved against account balances held by each person, writes Ripple. However, in the case of international or cross-border transactions there are greater challenges in place. Namely, country-specific regulations and currencies.
As a result, exchanging one currency for another incurs a price and time difference that can impact the pricing on either side of the exchange. This, in turn, lowers the performance of the transaction and the liquidity while increasing the risk and cost involved.
In order to mitigate these risks to a certain degree, financial establishments are required to pre-fund nostro accounts on either side of a transaction in that country’s currency. Ripple states that through this method liquidity is improved as it lowers the risk for the parties involved in the transaction.
However, while this offers a solution it comes at a cost to do so, the company adds. A 2016 McKinsey Global Payments report states that there is around $5 trillion just sitting in these accounts worldwide. It goes without saying that those funds could be better spent somewhere else.
Yet, while larger financial institutions may be able to hold these accounts for cross-border transactions, for the small-to-medium sized payment companies and banks it’s just not sustainable to do so. For many they may simply be left out of the global payment transaction race.
For Ripple, though, they believe they have the answer. In the blog, Ripple states:
“Ripple’s xRapid solution uniquely uses XRP to offer on-demand liquidity. By facilitating real-time, lower cost transactions across currencies, xRapid reduces the risk and unlocks the full potential of cross-border payments for enterprise clients.”
Not only that, but unlike bitcoin, which can take over an hour to fully settle a transaction with a limited capacity of 16 transactions per second (TPS), Ripple is far quicker. XRP settles its transactions in seconds and can manage 1,500 TPS, the equivalent to major card networks such as Visa.
“This is because XRP was created specifically for enterprise use to provide liquidity for international transactions.”