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 short version of how that all ties together is this:
Ripple is a company that has been partnering with banks for years. The idea being that Ripple the company wants to get banks to use Ripple-based crypto technology to make traditional banking transactions faster and cheaper.
XRP is a cryptocurrency token created by Ripple.
Some of the systems being developed by Ripple don’t have to use the XRP token, for example the xCurrent and xVia payment systems don’t need to use XRP. However, unlike those products, xRapid, a solution for on-demand liquidity for banks preforming foreign exchange, does.
That said, owning XRP isn’t like having a share in the company Ripple, nor is XRP necessary for every Ripple product. Despite that however, XRP’s value generally does have a correlation with the success of Ripple the company and its products.
Thus, because XRapid actually requires XRP, it is probably the most correlated aspect of Ripple with XRP.
To understand why XRapid and XRP value might logically correlate, you have to understand how XRapid works.
Above I said XRapid is a liquidity solution for banks. The gist of that is this:
Banks need a pool of available money (liquidity) for foreign exchange. This means they have to keep extra currency on hand.
XRapid makes it so XRP can be used for liquidity rather than that currency. That means they don’t need to keep a pool of extra money on hand, they can use XRP as an intermediary.
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.
- 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.