For the last couple of days I've got curious about XRP and how it is suppose to work.

In short, I am not buying XRP. But do not underestimate the power of hype and let's be honest, not even 10% of investors will do similar research, just make sure to sell it before everyone else.

First and foremost how it actually works:

RippleNet is a payment network designed to facilitate fast, cost-effective cross-border transactions. Its goal? To replace the slow, expensive SWIFT system with something modern and efficient. Here’s how it works in practice:

  1. Joining RippleNet:

    • Banks and financial institutions join RippleNet to streamline cross-border transactions. They don’t need to hold XRP directly but use Ripple’s solutions to settle payments faster.

  2. Using XRP as a Bridge Currency:

    • If two currencies (e.g., USD and EUR) lack a direct trading pair, RippleNet uses On-Demand Liquidity (ODL) to convert USD to XRP and then XRP to EUR within seconds.

    • This eliminates the need for pre-funded accounts (nostro/vostro), reducing liquidity costs for banks.

  3. What Happens Behind the Scenes:

    • RippleNet connects to crypto exchanges or liquidity providers for the currency conversions.

    • The customer (you) sees a simple transaction, while the XRP transfer happens in the background.

How volatility is dealt with and what are the safeguards

Volatility is a legitimate concern for the system which suppose to guaranty a financial stability and that is how Ripple plan to deal with it:

  • Speed:

    • Transactions on the XRP Ledger settle in 3-5 seconds, significantly reducing the risk of price changes during the transfer.

  • Pre-Quoted Rates:

    • Before a transfer begins, RippleNet provides a guaranteed exchange rate, ensuring that price fluctuations during the transaction don’t impact the amount received on the other end.

  • Role of Liquidity Providers:

    • Banks and institutions don’t hold XRP themselves. Instead, they rely on market makers and crypto exchanges to handle conversions in real-time. These entities manage volatility risks using sophisticated algorithms.

  • Fixed Transaction Costs:

    • XRP fees are a fraction of a cent (0.00001 XRP). Even if XRP’s price skyrockets, the cost per transaction remains negligible, shielding users from price-related fee spikes.

Widespread Adoption: Will It Influence XRP’s Price?

Many investors believe that as RippleNet gains adoption, XRP’s price will soar. However, this might not play out the way you expect. Here’s why:

  1. Banks Don’t Hold XRP:

    • Institutions don’t need to hoard XRP to use RippleNet or ODL. They buy and sell it in real-time during transactions, meaning adoption doesn’t create sustained demand for the token.

  2. Circulating Supply Remains High:

    • Ripple holds a significant portion of XRP in escrow, releasing it periodically. This constant supply limits scarcity, a key driver of value in most crypto currencies.

  3. Adoption ≠ Price Impact:

    • RippleNet adoption benefits Ripple (the company), not necessarily XRP holders. The system’s functionality isn’t tied to XRP’s price, and banks’ use of RippleNet doesn’t remove XRP from circulation in a way that would drive prices higher.

  4. Speculation Drives Price:

    • XRP’s price movements are heavily influenced by market hype, legal battles (e.g., the SEC case), and speculative trading, rather than fundamentals.

Why You Might Want to Think Twice Before Buying XRP

  1. Utility Doesn’t Equal Investment:

    XRP is optimized for a specific purpose: facilitating cross-border payments. While this makes it valuable for financial institutions, it doesn’t necessarily translate into long-term price growth for investors.

  2. Speculation Over Fundamentals:

    Much of XRP’s price action is driven by speculation, not usage. Even widespread adoption of RippleNet might not generate the returns investors expect.

  3. Ripple’s Escrow Supply:

    Ripple periodically releases XRP from escrow, which could dilute the token’s value over time, keeping price growth limited.

  4. Uncertain Regulatory Landscape:

    Ongoing legal challenges and regulatory scrutiny add risk to holding XRP, particularly in markets like the U.S. and to some extent in Europe. While the U.S. has made strides in crypto regulations, the Eurozone is catching up with the rollout of its MiCA framework.

One more fundamental number to consider:

  • Daily Transfer Volume: The global daily amount of interbank transfers is around $1.8 trillion on average.

  • Current XRP Market Cap: At a price of $2.5 USD, XRP’s market capitalization is approximately $145 billion.

  • Market Cap Required for $1.8 Trillion Transfers: To support this volume, XRP’s market cap would need to reach $360 billion, assuming high velocity and efficient liquidity.

This puts the fundamental price of XRP at around $7.5 USD per token (and that’s being generous). Keep in mind, this assumes 100% adoption of RippleNet globally—a scenario that’s still far from reality.

So, here’s the big question:
When do you think RippleNet will achieve 100% global adoption? And more importantly, how much of the current price is driven by actual fundamentals versus speculation?



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