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Sober calculations assuming XRP are used for all SWIFT transactions

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4 hours ago, tar said:

Aloha,

as widely known, XRPs should be used as world currency / exchange token in order to make nearly all everyday transfers of money more efficient (cheaper, faster, more secure). So far, so good. But there are wild speculations that base the XRP valuation of the total amount moved per time and I think, we need a bit sobering here.

The minimum value of XRP is equal to the maximum amount of money that could be transfered by it by each settlement time.

Assuming that for all those transactions XRP will be used as mediator token (which I think will not apply for non-cross-border payments, see xCurrent) and knowing that XRP can actually handle 1.500 transactions per second we can calculate the minimum average amount per transaction:

  • seconds per day: 86.400
  • max. transactions per second (TPS): 1.500
  • max. transactions per day: 129.600.000
  • avg. amount per transaction: about 50.000 $
  • avg. amount per second: about 75.000.000 $ (of course)

Perhaps you will be surprised but the TPS actually do not affect the minimum average price calculation. So as Ripple already tested 50.000 TPS successfully we can also calculate the minimum average amount per transaction for that:

  • seconds per day: 86.400
  • max. transactions per second (TPS): 50.000
  • max. transactions per day: 4.320.000.000
  • avg. amount per transaction: about 1.500 $
  • avg. amount per second: about 75.000.000 $ (of course)

Then we need the total available amount of XRP:

To be more precise, we would also need to know how many XRP are locked in other escrows, are released from escrows, are hold by investors, are totally lost (that could be around 20 % of the circulating supply!) and are otherwise not useable. But for now, lets keep it simple and use the official circulating supply in order to calculate the minimum price based on usage.

Furthermore we know that a transaction needs at average 4 seconds to settle (and this could be reduced to 1 second soon) which means that the XRP bound to one transaction are not available until the settlement for this transaction has been realized.

  • avg. available XRP per second on a 4 second settlement time: 10.000.000.000
  • avg. available XRP per second on a 1 second settlement time: 40.000.000.000

So now we have everything we need to calculate the minimum price for each XRP when it would be used for every transaction by SWIFT:

  • 1.500 TPS and 4 seconds settlement time: 50.000 $ * 1.500 / 10.000.000.000 = 75.000.000 $ / 10.000.000.000 = 0,0075 $
  • 50.000 TPS and 4 seconds settlement time: 1.500 $ * 50.000 / 10.000.000.000 = 75.000.000 $ / 10.000.000.000 = 0,0075 $
  • 1.500 TPS and 1 second settlement time: 50.000 $ * 1.500 / 40.000.000.000 = 75.000.000 $ / 40.000.000.000 = 0,0019 $
  • 50.000 TPS and 1 second settlement time: 1.500 $ * 50.000 / 40.000.000.000 = 75.000.000 $ / 40.000.000.000 = 0,0019 $

Conclusions:

1) Are you disappointed? :huh: I am a bit but this is the absolute minimum when XRP replaces SWIFT and as we know, Ripple aims for further XRP use cases.

2) We see that the lower the settlement time the lower the minimum XRP usage value as the actual available XRP amount for the transactions rises!

3) The TPS seems to have no effect in this calculation but they are important assuming that there are millions of really small transactions (e.g. the weekly grocery shopping) that have to be compensated by some very big transactions in order to reach the overall transfer sum. Those few big transactions are the most important regarding the price calculation, see next point.

4) The actual transfered amounts per each settlement time (1 second or 4 seconds) are not stable and therefore the average amount by transaction peaks (I guess overall on Christmas and everytime when a single really big transfer is made - e.g. trillions through quantitative easing, bailout packages, pension funds, military budgets and such stuff) - and for this peak moments the calculated price based on XRP usage also peaks which either leads to a non stable XRP votality or to a basic foundation for a higher XRP price based on the known necessity demand on particular time spots.

Anyway, I hope you enjoyed my brain farts on this subject :bye:

Let's put this one to rest. I for one would not argue with @Hodor or David Schwartz, so let's see what they and others have said on the matter:

https://files.acrobat.com/a/preview/746e9c4d-b240-4ea5-95f0-9237f2cceb13

 

https://xrphodor.wordpress.com/2017/10/29/crystal-ball-xrp-price-speculation/

 

Edited by nomad_z
wrong link

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4 hours ago, tar said:

 

To 40.000.000.000 = 0,0019 $

 

Good lord.  I appreciate your effort and thought process, but we’re going to quote 100% efficiency and every major bank breaking transactions down to $50 at a time with the sole purpose of artificially suppressing the price of XRP?  

Everyone is going to play fair so 11,000 banks all agreeing that only 1500 at a time can do $50 transactions each second? That would be fantastic coordination.

lets say that it’s all going smoothly, everyone is being nice and somehow coordinating transactions so the system is running around the clock with the avg transaction from all the MAJOR BANKS IN THe WORLD limiting their transaction amounts to avg out to $50..

  Now all the sudden a new bank comes along and wants to do a million dollar transfer.  Well, to be fair to all the other banks, and with the sole purpose of keeping the price of XRP at peanuts, this banks will have to break down their $1m transaction into 20,000 $50 transfers.  Then every second, they get to have one of those transactions processed, so as to not disrupt all the other banks doing their maxed out $50 transactions (1499 at a time).  This poor bank will have to wait 20,000 seconds for all their $50 transactions to process.  20,000 seconds is roughly 6 hours.

 I’m sure, for the sake of keeping XRP at .000019 they would be willing to bite the bullet, wait hours and pay 20,000 transaction fees, instead of having instant settlement at almost no cost.  

Seem reasonable? 

Considering that it makes no difference what the price of XRP is to most banks who are just using it as a bridge asset, I’m not sure why they would be willing to sacrifice time and money to suppress the price of XRP. 

There isn’t enough data to truly determine what the low price of XRP will be; however, the lowest price will be based on the PEAK volume with the highest value transactions. not some low point or an avg.  that doesn’t include people holding, coins not in circulation, coins locked in wallets, burned XRP, etc. 

unless you have those numbers, you’re not going to get anything close to what the utility based price is.  Joel Katz estimated $20 just on the utility in replacing Swift. I would believe him more than some unrealistic pie in the sky nonsense. He, of all people, probably knows the numbers.

but I do appreciate your math and effort. 

 

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4 hours ago, RegalChicken said:

It's been speculated that only 8 billion xrp are actually in circulation. 

subtract those owned by speculators, and those lost in wallets.

add to that the use cases behind codius. 

Add to that anything held eventually in nostro accounts potentially. 

multiply that by the price that I want XRP to achieve 

equal  moon. 

That speculation is legit. Check out the rich list index. You can be in the one percent club and 93%of the xrp are in wallets that have more xrp than the 1% club.

CA2328CF-B187-4012-938B-97271FCDCF8D.png

Edited by Raz

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This assumes there is a communal pool of XRP which everyone shares and has access to and the XPool rumours seem to add to this concept. 

Yesterday there was an interview on this site with Dilip Rao - Global Head, Infrastructure Innovation, which is here :

Dilip is not describing the open access to each others XRP that your model assumes.  He is talking of Banks buying and "holding" XRP stocks.   He is also talking of businesses and Countries using the Ripple systems for internal exchanges as well as international exchanges.  Without XPool these hoarding systems will lock up huge amounts of XRP inside closed systems.

Dilip also hints that XRP will become a neutral asset for trading commodities between fiat to fiat.  This would make XRP usurp some of the roles of the dollar.  We have also heard of a company called XMetals trading in XRP instead of dollar, commodities might begin to be valued in XRP rather than Dollars. 

On another XRPchat thread started by Streamliner who has made a mathematical model using velocity of money which is here :      
https://www.xrpchat.com/topic/13617-my-valuation-of-xrp-by-mathematics-i-think-its-worth-100/  Streamliner gives a figure of 100dollars plus.

and on the same thread are the results from another contributor called Mpolnet  https://drive.google.com/drive/folders/1SB_9CCcuu9N70Xr-9Uqi16oN-X9DwPna

I am not very good at mathematics or reading spreadsheets etc, but from what I can gather his projections read as values against  penetrations of

0.76% = $7.53

1.9% = $9.75

3.6% = $12.68

5.9% = $16

18% = $53

33% = $116

43% = $132

 

Since I posted this summary the figures seem to have gone viral (not my intention). 

I think your model is useful since it gives a result for a system work flat out with maximum efficiency, it cannot go lower than your figures.

In practice your figures are very low because it is obvious that

  • The more the tokens grow in value and importance the more Banks, institutions  and individuals will hoard and lock away XRP as very safe very high yielding investment opportunity
  • The system will not be as efficient as you suggest - XRP will not be in the right place or available for sale
  • XRP might be used for commodity trading
  • The roles of XRP are multiplying - international credit card type payment systems

Personally I think utility is the excuse to invest in XRP because it is solid as opposed to a digital asset that has no function in the real world.  For this reason XRP is going to have a value like buildings have, and the values spirals to become many times higher than the one that we arrive at looking at the asset purely through the value of its utility.

 

 

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@tar Currently, banks process Swift payments in batches (usually 1-3) by end of day.  This is largely from reconciliation and netting of positions/exposures/funds across all business units and client accounts before final end of day settlement via the different nostro/vostro accounts and correspondent banks.  

Should Ripple enter partnership with Swift, these eod batches will not change overnight given the present operational process and infrastructure in most banks.  As such, it would perhaps be better to project your price based on this as oppose to real time settlement of up to 4s which is the end game eventually.  I did not run thru your computation but would expect my above point to impact your price prediction significantly.  

By the same token, banks will not rid their current operations/support units/processes overnight but are simply looking for faster settlement of their payments (not 2-3 days) via xCurrent.  With xRapid, this can only be entertained after consideration to rid the relationships/fees with the corresponding banks that will in effect lead many to fail/close down in addition to the streamlining of Operations leading to massive staff cuts mainly in operations/finance/treasury/risk etc.

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10 hours ago, tar said:

Anyway, I hope you enjoyed my brain farts on this subject :bye:

I think people are being a bit harsh with you. I appreciate you've at least put some time in on your calculations. But as has been commented on repeatedly, I think you'll need to put more time into the assumptions. The reason being is that your bare minimum calculation is based on highly theoretical assumptions that are extremely unlikely to ever be met in the real world.

As was already mentioned above, to calculate the theoretical minimum you'll first need to work out some other data.

1) Busiest period of the day converging across all major corridors. - volume and value

2) Amount of XRP available to utilise for this purpose

3) Realistic recycle time (even adding in Cobalt leading to a 1.5-2.0s turnaround it doesn't mean the same amount of XRP will instantly be available for the next transaction on the same corridor)

But then you have to figure in all the other little factors which will deprecate system efficiency - direction of flow through corridors (is more XRP moving out of efficient channels into less efficient ones ie. is there an abundance of XRP sitting uselessly in exotic exchanges leading to not enough in high volume ones), orders waiting to be filled, etc. 

There is so much information we need but don't have reliable access to.

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22 hours ago, spiras said:

Good lord.  I appreciate your effort and thought process, but we’re going to quote 100% efficiency and every major bank breaking transactions down to $50 at a time with the sole purpose of artificially suppressing the price of XRP?  

Everyone is going to play fair so 11,000 banks all agreeing that only 1500 at a time can do $50 transactions each second? That would be fantastic coordination.

lets say that it’s all going smoothly, everyone is being nice and somehow coordinating transactions so the system is running around the clock with the avg transaction from all the MAJOR BANKS IN THe WORLD limiting their transaction amounts to avg out to $50..

  Now all the sudden a new bank comes along and wants to do a million dollar transfer.  Well, to be fair to all the other banks, and with the sole purpose of keeping the price of XRP at peanuts, this banks will have to break down their $1m transaction into 20,000 $50 transfers.  Then every second, they get to have one of those transactions processed, so as to not disrupt all the other banks doing their maxed out $50 transactions (1499 at a time).  This poor bank will have to wait 20,000 seconds for all their $50 transactions to process.  20,000 seconds is roughly 6 hours.

 I’m sure, for the sake of keeping XRP at .000019 they would be willing to bite the bullet, wait hours and pay 20,000 transaction fees, instead of having instant settlement at almost no cost.  

Seem reasonable? 

Considering that it makes no difference what the price of XRP is to most banks who are just using it as a bridge asset, I’m not sure why they would be willing to sacrifice time and money to suppress the price of XRP. 

There isn’t enough data to truly determine what the low price of XRP will be; however, the lowest price will be based on the PEAK volume with the highest value transactions. not some low point or an avg.  that doesn’t include people holding, coins not in circulation, coins locked in wallets, burned XRP, etc. 

unless you have those numbers, you’re not going to get anything close to what the utility based price is.  Joel Katz estimated $20 just on the utility in replacing Swift. I would believe him more than some unrealistic pie in the sky nonsense. He, of all people, probably knows the numbers.

but I do appreciate your math and effort. 

 

First, by 50.000 I meant fiftfythousand and not fifthy.

Second, thats a minimum calculation and the non-stable and peaking amounts per settlement time have been mentioned.

Third, by 0,0019 $ I meant 0.19 cent.

Fourth, I agree that the lowest price be based on the peak volume with the highest value transaction for each settlement time and I also mentioned the implications (either still high votality or a stable foundation) and the average would be the theoretical minimum because if you have a lower value as the average there needs to be a higher value as compensation in order to get to the same average and that higher value is - OF COURSE - higher than the average (who had thought of that!?).

Fifth, did @JoelKatz use other numbers?

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Thanks for your feedback, everybody and I guess, the whole issue can be broken down to three things:

1) Get the correct number for the actual real available supply which is far lower than those 40.000.000.000 and by "available" I mean "can be bought within an acceptable price range".

On the one hand many are eager to gain more XRP expecting a moon development (so they hold and would only sell for a mooned price). On the other hand someone with lets say 1.000.000.000 XRP cannot sell all of them at once without risking a massive price drop (and hereby risk losing assets). According to the XRP distribution I even think that 8.000.000.000 would still be too high. Perhaps someone is able to sum up the available supply on all exchanges offered within a price range of the actual price + 50%? Add to that the 0,01 % of the monthly Ripple escrow.

2) Get the correct amount of money movements that will benefit when they are moved by XRP. As I know, cross-border payments directly benefit by XRP usage while for domestic transfers XRP are not obligatory to benefit from the Ripple Network. Furthermore, the usual clearing between banks does not make sense anymore when you can settle every transaction within seconds and it costs nearly nothing. By that the clearing will be automatically done permanently. That means, that higher overall amounts (volume) will be transfered than now.

3) Get the highest transaction amount that fits the category of 2) within a regular settlement period within one payment channel and the corresponding XRP amount that could be used on that channel. Hereby we should exclude monstrous special payments that occur once a year or even less frequent.

Edited by tar

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7 minutes ago, tar said:

First, by 50.000 I meant fiftfythousand and not fifthy.

Second, thats a minimum calculation and the non-stable and peaking amounts per settlement time have been mentioned.

Third, by 0,0019 $ I meant 0.19 cent.

Fourth, I agree that the lowest price be based on the peak volume with the highest value transaction for each settlement time and I also mentioned the implications (either still high votality or a stable foundation) and the average would be the theoretical minimum because if you have a lower value as the average there needs to be a higher value as compensation in order to get to the same average and that higher value is - OF COURSE - higher than the average (who had thought of that!?).

Fifth, did @JoelKatz use other numbers?

great, so in the perfect world scenario where all transactions are perfectly timed as to fill every second of every day with the exact amount of transfers to keep XRP in check at 19 cents... crazy bank comes along and wants to do 5 mil transfer.  All XRP is accounted for in the ongoing perfect world of transactions, so the bank has to either wait until they are able to purchase $5 million of XRP at .19 (25 million XRP which would be 100 seconds of wait time if they were able to get all the XRP available during that time) or the price of XRP has to increase to $19 for them to conduct their transaction in 1 second which would only require 250K XRP (which is the amount of XRP that is available every second in your scenario above).

Of course, to the bank, it makes no difference what the price of XRP is, since they are going to sell it 1 second later for the whatever price they jacked it up to, for a net break even cost (maybe minus a few bucks for the network fees and possible decline of price during the selloff).

Or they could just wait so they can hold the price down on you. 

Obviously, for many reasons the system wouldn't work this way, since you will have LPs providing the liquidity, and not all XRP will be equally available in all markets (due to various LPs holding XRP pairing to different currencies).

You will find a balance of price based on the highest demand, which becomes the support, with speculators not allowing the price to drop too much between high demand times because they can hold it and sell it for a profit hours later during peak times.  Example, lets say that every Friday, big banks need to do high volume transfers due to whatever conditions you want to think of.  The price of XRP would jump every Friday to astronomical levels, then die off over the weekend only to gain again Monday morning.  Well, you will have speculators who recognize this pattern, not allowing the price to drop too much before they buy it up and then can turn around and sell it Monday.. or wait until the peak times on Friday to make even more profit during high demand.  This will serve to balance the price around the high point (Friday) because there will be a market of people making money off the dips, buying it up when it dips just low enough for them to make a profit.

In a nutshell, this is just a very rudimentary way that price will be driven by demand.  There are probably a thousand other reasons why the scenario you mention is not anywhere near realistic and could never happen that way.  Not even close.  Making price based projections off of those assumptions are going to be so far off that its not even worth talking about.

My opinion.

 

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As mentioned in earlier post, end of batch settlements will continue for years even with adoption of Ripple.  There won’t be real time settlement every second of the day but only a few times during end of day ... this will greatly impact XRP price as well as adoption by bigger tier one banks ...

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11 hours ago, spiras said:

great, so in the perfect world scenario where all transactions are perfectly timed as to fill every second of every day with the exact amount of transfers to keep XRP in check at 19 cents... crazy bank comes along and wants to do 5 mil transfer.  All XRP is accounted for in the ongoing perfect world of transactions, so the bank has to either wait until they are able to purchase $5 million of XRP at .19 (25 million XRP which would be 100 seconds of wait time if they were able to get all the XRP available during that time) or the price of XRP has to increase to $19 for them to conduct their transaction in 1 second which would only require 250K XRP (which is the amount of XRP that is available every second in your scenario above).

Of course, to the bank, it makes no difference what the price of XRP is, since they are going to sell it 1 second later for the whatever price they jacked it up to, for a net break even cost (maybe minus a few bucks for the network fees and possible decline of price during the selloff).

Or they could just wait so they can hold the price down on you. 

Obviously, for many reasons the system wouldn't work this way, since you will have LPs providing the liquidity, and not all XRP will be equally available in all markets (due to various LPs holding XRP pairing to different currencies).

You will find a balance of price based on the highest demand, which becomes the support, with speculators not allowing the price to drop too much between high demand times because they can hold it and sell it for a profit hours later during peak times.  Example, lets say that every Friday, big banks need to do high volume transfers due to whatever conditions you want to think of.  The price of XRP would jump every Friday to astronomical levels, then die off over the weekend only to gain again Monday morning.  Well, you will have speculators who recognize this pattern, not allowing the price to drop too much before they buy it up and then can turn around and sell it Monday.. or wait until the peak times on Friday to make even more profit during high demand.  This will serve to balance the price around the high point (Friday) because there will be a market of people making money off the dips, buying it up when it dips just low enough for them to make a profit.

In a nutshell, this is just a very rudimentary way that price will be driven by demand.  There are probably a thousand other reasons why the scenario you mention is not anywhere near realistic and could never happen that way.  Not even close.  Making price based projections off of those assumptions are going to be so far off that its not even worth talking about.

My opinion.

 

0,19 cents are not 19 cents and therefore it would be 2.631.578.947,368421 XRP needed for a 5 mio. $ transaction that are blocked for this transaction within the settlement time. Yes, if there are not available as much XRP as needed within the payment channel either the price will rise accordingly or the available XRP will decrease as the transfering party accumulates them until the amount is reached needed for the transaction - otherwise the transaction cannot be settled.

So, yes: the price will not fall to the absolute calculated minimum within the real world, of course.

Regarding regular peak times (every Friday, e.g.): they also increase the price but as everybody knows this, the price will not jump suddenly up and down but rather constantly stay in a higher level as 1) there are LP who can wait and hold until peak time and 2) they who needs the XRP on peak times accumulate before schedule time in order to reduce their costs and 3) the regular peaks will vanish if the costs are too high and therefore more regular smaller transactions instead of peaking transactions will be made. We will likely observe an equalization.

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