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The more XRP liquidity there is, the larger transactions that banks can process using XRP as a bridge currency without suffering from slippage (i.e., the banks save more money). There's been a lot of talk about BTC ETFs, and even ETH, but how would an XRP ETF affect XRP liquidity? An XRP ETF would obviously bring more participants in. Would it cause tighter spreads on all XRP exchanges as market participants could arbitrage between the XRP ETF and the other XRP exchanges, thus narrowing spreads? Im assuming the XRP arbitragers would also create markets on other XRP exchanges as well (e.g., BitStamp, Kraken). Or, would it it have an adverse affect, as the fund managing the XRP ETF would need to consistently go into the XRP exchanges and purchase XRP, thus taking away liquidity on the offer (in theory)? Note: This is a question about XRP liquidity, not how an XRP ETF would affect price (although the two are related).
Ripple (via XRP) is focusing on bridging the less liquid currencies, as opposed to the liquid pairs like the EUR/USD. Here is what I am wondering though: Even though the spread between the EUR/USD is very tight, their are still costs associated with executing that trade (e.g., transaction fees/commissions). If a smaller bank were to use Ripple's software for a EUR/USD transaction, could they potentially save more money executing via Ripple instead of using an Interbank Market market maker like JP Morgan or Citi?