Ripple’s xRapid product could make its debut sooner than later. Sagar Sarbhai, Ripple’s head of regulatory relations for the Asia Pacific and Middle East region, tipped his hand about the company’s xRapid product. He told CNBC it should be going live “in the next one month or so.” For No 3 cryptocurrency Ripple, this could be a huge boost.
“I am very confident that in the next one month or so you will see some good news coming in where we launch the product live in production”
xRapid is an XRP-fueled liquidity provider for bank payments, and Ripple is the majority holder of XRP coins. xRapid remains in the trial phase and in recent months, a number of companies have performed pilot projects testing the product for cross-border payments.
As Ripple CEO Brad Garlinghouse explained, several tests by financial institutions on the U.S.-Mexico payment corridor have demonstrated a cost savings of up to 70% compared to traditional methods is possible.
So far, there are a total of 10 companies that have publicly announced xRapid test projects and a trio of companies that are using xRapid successfully to send cross-border payments.
Garlinghouse also said a few months ago that at least one bank will use xRapid later this year followed by big banks doing the same in 2019. He doesn’t expect big banks and liquidity providers, such as Western Union, that have already developed legacy systems, to switch to xRapid and XRP immediately. But for financial institutions that rely on liquidity providers for cross-border payments, xRapid will be of interest in the near future, Garlinghouse added.
xRapid, XRP and Liquidity
Liquidity plays a very important role in national and cross-border transactions. For domestic payments, liquidity is usually very high as the unwinding banks send the same currency. In international transactions, on the other hand, liquidity tends to be low, as the exchange of two different currencies can result in delays and thus price differences. This undermines the stability of the transaction, e.g. the liquidity, and increases the costs.
Due to their low liquidity, the liquidating banks have to actively hold accounts on both sides of a transaction in their respective local currency. However, these accounts are costly, with few banks around the world maintaining them.
Meanwhile, “exotic” transactions are rare and smaller currencies sometimes require several trading parties, with each party incurring costs for the transaction. Many small- to mid-sized banks and payment providers therefore prefer to pay a fee to use the systems of the big banks (liquidity providers) and even to maintain nostro accounts.
Ripple’s solution to this problem is the xRapid and the XRP tokens. XRP replaces a large number of nostro accounts as a universal “bridge currency,” takes over the transactions within a few seconds and thus provides greater liquidity for financial institutions.
Thanks to XRP, a financial institution can focus on exchange rates for only a few pairs (with XRP) and save money. It no longer must resort to liquidity providers or pay fees for their services. Ripple’s xRapid solution is an on-demand liquidity solution.
The XRP token is the key element in this ecosystem, acting as a bridge currency and eliminating the need for costly nostro accounts. Simply put, a transaction works by exchanging the sender currency to XRP, sending XRP and then swapping into the recipient’s currency. The transaction is traceable throughout the entire process.