Digital assets are often referred to as safe havens – assets that market participants turn to during the turmoil in the financial markets. Today this label is being tested as COVID-19 has an impact on global financial markets.
Amid the sudden market collapse on March 12, 2020 – what many refer to as “Black Thursday” – daily transaction fees rose to five times the normal amount on the Ethereum and Bitcoin network, delaying settlement and increasing the exchange rate for currencies between exchanges. During this time, the analysis shows that users have begun to switch to the digital asset XRP for exchange credit transfers.
The low transaction fees, reliability, and speed of XRP make it ideal for raising liquidity when making cross-border payments. The same attributes also enable market makers and traders to take advantage of arbitrage opportunities within the exchange – even in times of market stress. Traders and market makers use XRP to quickly service margin calls and manage risks / collateral.
To better capture price differences on digital asset exchanges, value needs to move as quickly as possible, often around the world. Because of its unique consensus validation architecture, XRP does this almost instantly, providing market makers and traders with a high-speed tool to move their funds from exchange to exchange. The speed of XRP not only allows it to capture more price differences between exchanges, it also reduces the risk to the various risks associated with these arbitrage trades.
Several of the 130+ exchanges that XRP is listed on have noted this global payments use case and taken action. From North America to Asia, they have listed XRP as a base currency to be combined with fiat currencies and other digital assets in trading.
In a recent post, Bitrue CEO Curis Wang announced his company’s decision to switch to XRP. “The use case of XRP makes it both practical and scalable, so it made sense for our company to focus on it,” recalls Wang. “The more people turn to RippleNet’s on-demand liquidity service for faster, cheaper global payments, the more Bitrue will grow as the use of XRP increases. We took the chance to focus our platform on the asset and now benefit from being a fully integrated part of the XRP community. “
XRP’s low transaction costs allow traders to take advantage of more trading opportunities. Each XRP transaction costs a fraction of a cent, which allows traders to benefit from smaller price fluctuations between exchanges. If capital can move faster and more efficiently, trading will also take place more frequently, which is also beneficial for exchanges that can benefit from increased commissions.
The speed of XRP also reduces the need for liquidity providers to hold large inventories of digital assets on multiple exchanges, thereby reducing the need for working capital without reducing the ability to leverage trading opportunities. Once a trade opportunity has passed, traders can move their stocks Swap them out and keep them where you feel most comfortable without sacrificing future opportunities. This enables traders to minimize their risk of stock market hacking risks and take advantage of the exchanges by reducing the amount of inventory at risk at any given time.
While some exchanges have started issuing their own tokens as base currencies, these assets are exchange-specific. They do not allow fluid trade between exchanges and increase risk by encouraging pooling of capital. Using independent digital currencies such as XRP as the base currencies instead, these challenges disappear, and XRP allows value to move quickly and cheaply to any exchange in the world where the digital asset is listed.
The speed, low transaction costs and scalability of XRP make the digital asset a league of its own when it comes to processing. Over 50 million ledgers have been securely closed since its inception, and many highly regulated financial institutions are already using XRP to improve their customers’ global payments experience.
Ripple focuses on building technology to transform global payments. If you are a financial institution looking to take advantage of RippleNet’s on-demand liquidity service, please contact us.