XRP has been on a run for the past few days. This is likely due to excitement over the upcoming xRapid system. To understand why that is the case, you have to understand what XRapid is and how it relates to XRP.
XRapid is a liquidity solution for banks that uses Ripple’s XRP as a bridge currency and is being developed by the company Ripple. According to Ripple, XRapid eliminates delays in global payments while also dramatically lowering their cost, thus making cross-boarder payments instant and inexpensive.
The gist is banks need a pool of available money (liquidity) for foreign exchange (transfers between customers with different currencies). This means they have to keep extra currency on hand to draw from.
XRapid makes it so XRP can be used for liquidity rather than a traditional fiat currency. That means banks don’t need to keep a pool of extra money on hand, they can use XRP as an intermediary via the XRapid system.
Or in Ripple’s own words, it works like this:
A payment journey with xRapid looks like this: a financial institution connects directly to digital asset exchanges in both the originating and destination corridors. The originating currency is exchanged into XRP which provides the necessary liquidity to power the final payment, and then in seconds that XRP is exchanged into the destination currency in the second digital asset exchange. Once this transaction takes place, the funds are sent out on the local rails of the destination country for payout. The transaction is tracked end-to-end, and the result is a cross-border payment that is cheaper and faster than ever before.
That is what it means when Ripple’s site says:
xRapid is for payment providers and other financial institutions who want to minimize liquidity costs while improving their customer experience. Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high. xRapid dramatically lowers the capital requirements for liquidity.
xRapid uniquely uses a digital asset, XRP, to offer on-demand liquidity, which dramatically lowers costs while enabling real-time payments in emerging markets. Built for enterprise use, XRP offers banks and payment providers a highly efficient, scalable, reliable liquidity option to service cross-border payments.
In early tests Ripple showed that banks saved substantial fees using this method.
For payments in the critical remittance corridor between the U.S. and Mexico, financial institutions using xRapid saw a savings of 40-70 percent compared to what they normally pay foreign exchange brokers
In short, XRP and XRapid have a rather direct correlation, and XRapid preforms a service that could save banks a ton of time and money on foreign exchange… and this helps explain the current XRP run.
- Source Liquidity xRapid. BlockExplorer.com.
- Everything You Need to Know About xRapid (Ripple’s Crypto Service Going Live “Next Month”). Ripple.com.
- First Pilot Results for xRapid. Ripple.com.