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Noovy

XRP extreme volatility and bank adoption

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An interesting point raised by another user, about whether the volatility will effect whether banks decide to adopt XRP or not, what do you guys think?

I personally think that if the banks hold most of the XRP and the price is high, the speculators won't have much power to move the price all that much anymore...

2 hours ago, Terp said:

@Noovy I read all your points and agree. Fantastic write-up too!  But one more “naysayer point” is: why would banks adopt something so volatile i.e. the XRP token? Banks love stability and right now XRP (and all other cryptos) is anything but stable. Are we to assume that with XRP utilization by big banks (transferring billions of XRPs daily) will bring a stable price point? Because if we don’t make this assumption, why would banks risk it? Sure, they save money on the transfer but because it’s so volatile, they could lose that money saved just from the price fluctuations... I’ve been wrestling with this point for some time now and I cannot figure it out. Any and all input is greatly appreciated :)

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1 minute ago, JoelKatz said:

What they care about is holding cost, not really volatility directly. So long as the upside exceeds the downside, the holding cost can be low or even negative.

Banks don't actually have to hold XRP. They can use market makers who hold XRP and market makers can actually profit from volatility.

In the short to medium term, it doesn't matter all that much. We're going to be choosing corridors that are so inefficient that XRP holding cost won't be a significant factor. But over time, as we try to tackle larger and more efficient corridors, lower holding cost will make XRP more attractive.

The MVP has spoken! this is known.

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3 minutes ago, JoelKatz said:

What they care about is holding cost, not really volatility directly. So long as the upside exceeds the downside, the holding cost can be low or even negative.

Banks don't actually have to hold XRP. They can use market makers who hold XRP and market makers can actually profit from volatility.

In the short to medium term, it doesn't matter all that much. We're going to be choosing corridors that are so inefficient that XRP holding cost won't be a significant factor. But over time, as we try to tackle larger and more efficient corridors, lower holding cost will make XRP more attractive.

Thanks for the concise answer @JoelKatz! For anyone who wants to unpack in more detail what David's talking about, review this PDF https://ripple.com/files/xrp_cost_model_paper.pdf which states in more detail what he's articulated.

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I'm left wondering if it's realistic to expect to see the actual use of these inefficient corridors by this spring, as has been suggested somewhere in these forums. It sounds as if Ripple has been busy engineering the rails of the payments system, however, I wonder when the bullet trains are actually going to start using them. 

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15 minutes ago, JoelKatz said:

What they care about is holding cost, not really volatility directly. So long as the upside exceeds the downside, the holding cost can be low or even negative.

Banks don't actually have to hold XRP. They can use market makers who hold XRP and market makers can actually profit from volatility.

In the short to medium term, it doesn't matter all that much. We're going to be choosing corridors that are so inefficient that XRP holding cost won't be a significant factor. But over time, as we try to tackle larger and more efficient corridors, lower holding cost will make XRP more attractive.

Is USD-MXN corridor (where Cuallix should operate) so inefficient that the spread of the MM because of the XRP's volatility is still better than the actual methods? I hardly believe it.

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6 minutes ago, tulo said:

Is USD-MXN corridor (where Cuallix should operate) so inefficient that the spread of the MM because of the XRP's volatility is still better than the actual methods? I hardly believe it.

Where do Cuallix operate?

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1 minute ago, elias said:

Where do Cuallix operate?

It was claimed to operate in that market, but it seems they'll be operative on Q1 2018. Not much information around to confirm it.

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33 minutes ago, JoelKatz said:

What they care about is holding cost, not really volatility directly. So long as the upside exceeds the downside, the holding cost can be low or even negative.

Banks don't actually have to hold XRP. They can use market makers who hold XRP and market makers can actually profit from volatility.

In the short to medium term, it doesn't matter all that much. We're going to be choosing corridors that are so inefficient that XRP holding cost won't be a significant factor. But over time, as we try to tackle larger and more efficient corridors, lower holding cost will make XRP more attractive.

if it wasn't for david clearing up the FUD we would be screwed

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1 hour ago, tulo said:

Is USD-MXN corridor (where Cuallix should operate) so inefficient that the spread of the MM because of the XRP's volatility is still better than the actual methods? I hardly believe it.

Me too! I was stunned that it made sense in a corridor that I would have assumed was fairly high volume and liquid. Part of it is that the volatility works in your favor as often as it works against you.

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For token value I'm in agreement with the Ripple executives that feel it should be based on utilization. 
What problem if any is the token solving. What is the customer base for that use etc.

But then, if XRP is the token that will be used for transactions between financial institutions etc - would FI's and Ripple not want the token value to be less volatile?

If XRP is $1 today - but then $2.00 this time next year - I would naturally have thought that would make bank adoption less likely - to see that level of volatility that does not usually occur with fiat currencies. But obviously we're in a totally different arena here and I appreciate JoelKatz's insights and answers.

Does the XRP value effect the transaction fees?  ie  are the transaction fees in XRP and deducted from the transaction? 
So, in effect the transaction fee would have doubled if the XRP value doubles?

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15 minutes ago, CarloRossi said:

Does the XRP value effect the transaction fees?  ie  are the transaction fees in XRP and deducted from the transaction? 
So, in effect the transaction fee would have doubled if the XRP value doubles?

Yes.   But the fee is miniscule so doubling it has a miniscule effect.  Also bear in mind that this is a digital asset and it is divisible into one millionth of an XRP ( a 'drop' ) which is actually what transaction amounts and fees are calculated in.   There is even the possibility of further dividing it in the far future.

So the fee is not an issue with any conceivable XRP price.

The real actual cost to the FI is the software and infrastructure and treasury costs... which are much improved and reduced by using Ripplenet and XRP.  The XRP fee is the miniscule part.

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