When MOON??!

Mar 02, 2018

"Man, when's this damn price going to launch??"...

I can hear you from here. Or is that my inner voice, lol.

Truth is, we're probably stuck for a while. Sure, we may have some jumpiness to the price, but we really need another kick to light the fires of infinite human greed again. My recent poll highlighted what I expected, that sentiment is centered around ODL (On-Demand Liquidity) in production adoptions, and the announcement of major brand name alliances with the likes of Google/Uber/Amazon/Apple, etc. Not much else driving the price until then.

I'm sure a lot of you are disappointed with the banking industry's lackluster ODL reception given the huge demand for its ugly step-cousin, xCurrent, not to mention the agonizingly slow ODL piloting process, so let's talk about ODL adoption for a minute (Please read this first if you haven't already). It's a tough product for most people to understand; it's taken me a long time and a lot of research to "get" the product itself, but then there's also the concept of corporate uptake, which isn't discussed much, and that's what I want to talk about here.

The first thing that's important in order for ODL to be viable is the accessibility of XRP/fiat pairs around the world. For example, let's say the big 5 countries are all wired into RippleNet now, and I'm some lowly bank in Timbuk2. I get onto RippleNet and start using xCurrent. Things are great, but now I'd really like to start saving even more with ODL. I press the big red "use ODL" button to request an ODL transaction that will convert my Timbuk2 dollars to XRP, and wha wha.. there's nobody trading that currency for XRP in Timbuk2. I mean, obviously I can't use XRP if nobody will convert it to or from Timbuk2 dollars, right?

So, unless there is XRP trading to a local currency, ODL is not an option. This current challenge is a large reason why ODL has been slow to pickup. It's not because the banks aren't interested in saving money (because we all know bankers would cut their mother's ring finger off), no, it's just a lack of available currency conversion. Of course, Ripple continues XRP's penetration onto as many global exchanges as possible, so this challenge is increasingly being met.

The second thing that's important in order for ODL to be viable is liquidity in those above-mentioned XRP/fiat pairs. Some definitions:

"Liquidity" is a catch-all term for the notion of lots of buyers/sellers for a given pair COMBINED with a higher price. The higher the volume/price, the greater the liquidity. Higher liquidity means larger balances can utilize XRP.

"Slippage" is the change in price suffered when making trades large enough to consume a good deal of the order book. The more I sell or buy, the less and more (respectively) it will be traded at, and the more expensive larger trades become.

With low liquidity, you have increased slippage (and vice versa). With very large orders, you can easily clear out the order book, and possibly not even be able to acquire/sell enough XRP to complete your transaction. Higher liquidity addresses this.

What all this gobbledygook amounts to is that in order for the trillions of dollars of cross-border transactions to be possibly fulfilled by ODL:

  1. XRP/trading pairs need to be on exchanges in all traded currencies

  2. There needs to be sufficient volume on all those exchanges

  3. The price of XRP needs to be WAAAAY higher.. Orders of magnitude higher. High enough that these massive trades barely even move the price. That's very very very high.

We're not even close to that now. What the hell are we going to do? It seems like we have a chicken-or-the-egg problem right? Financial institutions can't adopt a low-value XRP, and XRP will never have a higher value without adoption from financial institutions!

Well, it's the same answer: the chicken came first (you think an egg is going to just lay itself?); but nobody ever tells you that the first chicken was really really tiny.

What you may not realize is that xCurrent and ODL can work in parallel. People often mistakenly consider the two options to be mutually exclusive choices; that a bank must pick one tech or the other, like picking a color to paint your car. This is not correct; there are business use cases for both technologies. In other words, some transactions can make more sense for xCurrent, while others make sense for ODL. They are team-members in the same game of value transfer.

What decides whether ODL makes sense for a transaction or not would be a few things:

  1. Are there XRP/fiat pairs available for both the source and target fiat?

  2. Is the liquidity sufficient in those pairs such that slippage wouldn't eat the savings?

  3. Are regulations inhibiting the source or receiver from using crypto in this capacity? (a whole nother topic I won't discuss here)

Hopefully you can see now that we are still quite a ways off from banks even being "able" to use ODL. MUCH more building out of the XRP ubiquity and trading volume still needs to grow. We are very early on in the evolutionary process that will enable ODL as a global option. For now, ODL will be limited to small value transfers, and only along very liquid rails where XRP/fiat pairs exist.

Here's the order in which banks will evolve their usage of Ripple's products and XRP:

  1. xCurrent pilot, still using SWIFT

  2. xCurrent live for encumbered corridors, still using SWIFT on traditionally quick corridors (e.g., USD/EUR)

  3. ODL pilot

  4. xCurrent for increasing number of bank transactions, SWIFT dwindling, ODL used in production for small value transfers on limited RippleNet corridors

  5. xCurrent used for half of transactions, SWIFT gasping for air, ODL usage increasing to medium sized transfers to increasing number of corridors

  6. xCurrent becomes antiquated, SWIFT who?, ODL manages the vast majority of transactions

  7. lambo

Most RippleNet customers are still on step 1, some at 2, few at 3, 4 remains the next goalpost.

So if you're sitting there with dry-eye, looking at that unmoving bastard XRP price, get a life. Staring at it makes no more sense than waiting for your rich uncle to die. Seriously. We're a long ways from step 7; turn off the PC, invite some friends over, light the BBQ, eat flesh. You'll feel better.

Comments welcome on Twitter

Previous Article

Next Article