A frequent question among Ripple aficionados is about the use of Ripple’s XRP in xRapid. Does it come from the Escrow in which Ripple keeps fifty-five billion coins to guarantee the token’s availability or does it come from XRP tokens currently in circulation?
That question is far from idle. As xRapid keeps being adopted by more and more banks and remittance services, it becomes more relevant. If those xRapid users get their XRP from the market, they will drive the demand up thus increasing the token’s price.
But let’s start at the beginning and recall the events surrounding the fifty-five billion lock-up, shall we?
Last December, XRP fans, users, and investors were a bit worried about the high number of XRP going around the markets because they feared that oversupply would bring the price down.
Remember, this is a currency that was fully pre-mined before it ever went live so, if Ripple wanted just to dump a hundred billion XRP tokens (which, of course, they won’t), they could.
The Ripple team decided to assuage the fans by locking away fifty-five billion XRP coins in an Escrow. The Escrow’s contracts are such that a billion tokens are released per month for Ripple Lab’s discretionary use.
In so far as we know, Ripple means to use this monthly sum to incentivize markets and to sell to institutional partners. Whatever is left after each month finishes, is locked up again in another Escrow.
How is XRP relevant to xRapid?
xRapid is one of Ripple’s solutions for financial institutions. It allows them to complete international transactions safely and quickly (a live demonstration was performed by Ripple’s chief cryptographer on last Consensus conference, and it made an impression) using any currency (fiat or crypto) they want.
But if they choose XRP, things are more efficient, and costs go down. The transaction fee must be paid in XRP anyway. xRapid is already working in the real world.
It’s cheap ($0.0004 per transaction and it’s fast (two to three minutes instead of the three to four days such operations usually need). Even the bank’s customer sees a difference in price as it can cut their cost up to seventy percent.
Which brings us back to our original question. This XRP used in xRapid transactions comes from the market or is it purchased by Ripple’s partners from the Escrow allowance?
The good news for all those who hold XRP is that it comes from the market. When the transaction is completed, those XRP are sold back into the market, which is pretty much the same as what happens among individual traders. The amount that goes out and back in the market, of course, is a function of the amount transacted by the remission.
And what difference does that make for XRP’s price?
Ripple’s XRP has been the most traded cryptocurrency in the world since last March, which gives it high liquidity. This can encourage customers to use it, so more money will be sent across borders in remittances, and that’s how xRapid will help things.
The coin’s availability makes it ideal for nearly instantaneous payment settlements, which is exactly what Ripple meant from the beginning. As the number of transactions and amount of transacted money using xRapid keeps growing, so will the XRP price since each operation needs to tap into the market to get some XRP to complete each transfer.
As far as we can tell the expanding adoption of Ripple’s xRapid can only increase the demand (hence, the price) for the XRP currency, even if it does it slowly. But if you think a bit about it, slower is better, that way potential xRapid users will adopt it without fearing XRP’s volatility.
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