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XRPHornets

Velocity of XRP in foreign exchange

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6 hours ago, XRPHornets said:

If we take your example speed of 60 secs for ease of explanation ( although the actual time that XRP is held is a lot less).

 

At 60 secs each XRP is used 1,440 times per day ( 60 minutes X 24 hours ). Lets assume that XRP is at the price of $1....

So to use up 1 billion XRPs on a permanent rolling basis, you would need a throughput of $1.44 trillion per day on any given exchange/corridor. (1,440 X 1 billion)

At a price of XRP = $10,  the volume exchanged would need to be $14.4 trillion. The whole SWIFT network only has a daily volume of $5 trillion per day.

Lets assume that in 5 years time all the escrow has been released and investors/speculators hold half of all XRP , that leaves 50 billion XRP to be used as transfer of exchange. This means a huge volume of XRP usage would be needed to use up all the XRP and therefore drive up the price of XRP.

I am huge believer in Ripple and the team and have most of my investment portfolio in XRP , however this scenario still niggles away at me.

I wonder if a greater mind than mine like @JoelKatz  could be kind enough to illuminate me out of my confusion.

The first sign your analysis is wrong is that according to your results its mathematically unlikely for XRP to hit numbers with trillions in institutional forex exchange that its already hit without the help of trillions in institutional forex exchange.

 

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16 minutes ago, ImTheRippler said:

The first sign your analysis is wrong is that according to your results its mathematically unlikely for XRP to hit numbers with trillions in institutional forex exchange that its already hit without the help of trillions in institutional forex exchange.

 

Fair point. It has reached a higher price with little or no use case . And it is this fact that is giving me hope .

But it doesn’t detract from the fact that the figures as I present them , don’t add them up .

Which is why I’m hoping someone can debunk my analysis, because there is no one more than me who hopes I am wrong.

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17 minutes ago, XRPHornets said:

Fair point. It has reached a higher price with little or no use case . And it is this fact that is giving me hope .

But it doesn’t detract from the fact that the figures as I present them , don’t add them up .

Which is why I’m hoping someone can debunk my analysis, because there is no one more than me who hopes I am wrong.

Your analysis is already debunked by hard reality. Likely because you're assuming some high level coordination where everyone on the planet waits exactly 60 seconds between transactions and nobody will ever use XRP more than once every 60 seconds so 5 billion is enough for the whole world at $1. Its already been worth 4x that and the world hasn't even used it yet for its real purpose. Plainly you're missing something pretty large here.

Edited by ImTheRippler

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1 hour ago, ImTheRippler said:

Your analysis is already debunked by hard reality. Likely because you're assuming some high level coordination where everyone on the planet waits exactly 60 seconds between transactions and nobody will ever use XRP more than once every 60 seconds so 5 billion is enough for the whole world at $1. Its already been worth 4x that and the world hasn't even used it yet for its real purpose. Plainly you're missing something pretty large here.

Great , but can you explain to me what it is I’m missing ?

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23 minutes ago, XRPHornets said:

Great , but can you explain to me what it is I’m missing ?

The volume is all on public ledger, at its all time high price XRP had around $3 billion in daily volume, now it's $300 million at $0.45.  This metric is more useful if you want to compare what SWIFTs daily trade volume could do for the price for XRP (in a vacuum/on its own). 

For reference, a $5 trillion daily volume (from SWIFT) would ADD over 1500x the volume XRP experienced at its all time high price, outside of any other trading of XRP from speculators or whatever.

XRP price is down 7x since ATH, volume is down 10x, so they are not exactly 1:1 but there is a clear connection.

 

Edited by ImTheRippler

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9 hours ago, XRPHornets said:

If we take your example speed of 60 secs for ease of explanation ( although the actual time that XRP is held is a lot less).

 

At 60 secs each XRP is used 1,440 times per day ( 60 minutes X 24 hours ). Lets assume that XRP is at the price of $1....

So to use up 1 billion XRPs on a permanent rolling basis, you would need a throughput of $1.44 trillion per day on any given exchange/corridor. (1,440 X 1 billion)

At a price of XRP = $10,  the volume exchanged would need to be $14.4 trillion. The whole SWIFT network only has a daily volume of $5 trillion per day.

Lets assume that in 5 years time all the escrow has been released and investors/speculators hold half of all XRP , that leaves 50 billion XRP to be used as transfer of exchange. This means a huge volume of XRP usage would be needed to use up all the XRP and therefore drive up the price of XRP.

I am huge believer in Ripple and the team and have most of my investment portfolio in XRP , however this scenario still niggles away at me.

I wonder if a greater mind than mine like @JoelKatz  could be kind enough to illuminate me out of my confusion.

This is one of the reasons I do not believe this huge price increase for XRP is as certain as some people make it out to be. 

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On 7/20/2018 at 4:58 PM, XRPHornets said:

Great , but can you explain to me what it is I’m missing ?

I have been googling "XRP velocity" because my mind has been coming back to the same question recently. I am trying to think who will really be holding xrp besides speculators. Joelkatz said some companies like uber and airbnb could hold it, but really he is just saying they would become market makers. Xrapid will create a lot of market takers, to fill the vacuum will be a large supply of market makers. The single largest holder of XRP, outside of speculators, will be market makers in my mind. Shore, maybe some institutions and FI's may hold XRP on their balance sheet, but it will always be hedged 100% negating any impact of their holding XRP and reducing the circulating supply. The bottom line is that it will be similar to the USD and Gold. What I mean is that the only thing giving the USD value is someone elses willingness to accept it. Much of the value in gold is a self fullfilling prophecy that it will hold value. Initially speculators will hold significant percentages of XRP, but we all have a goal in our heads right? In the future, as the price rises and people such as myself sell out, less XRP will be held by speculators and more will be placed into the circulating supply. The key will be to get out at the highest ratio of Volume/Circulating supply. In other words, it is likely XRP will have a huge speculative run up once real world volume really gets going, and it is my reckoning that could hit the highest price for the next 20 years (volume would need time to catch up to all the speculative supply that will be released). The good news is that the market makers will always have an incentive to provide for the market takers and market takers will provide for the market makers, speculators are not needed, just along for the ride.

Edited by xrpsailor1

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On 7/21/2018 at 8:25 AM, ringer2 said:

At 60 secs each XRP is used 1,440 times per day ( 60 minutes X 24 hours ). Lets assume that XRP is at the price of $1....

So to use up 1 billion XRPs on a permanent rolling basis, you would need a throughput of $1.44 trillion per day on any given exchange/corridor. (1,440 X 1 billion)

At a price of XRP = $10,  the volume exchanged would need to be $14.4 trillion. The whole SWIFT network only has a daily volume of $5 trillion per day.

This argument is treating xrp like a Stablecoin. Price would be more dynamic based on supply/demand in a given exchange/region. We are initially going to have pockets of demand around the areas that ripple is targeting.  Arbitrage will make the prices more uniform across exchanges.  

There was an attempt to arrive at a target price by someone at an Ivy League Uni which was posted recently here. 

 

 

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On 7/20/2018 at 10:58 PM, XRPHornets said:

Great , but can you explain to me what it is I’m missing ?

You are only looking at half the transaction:  Payments are asymmetric across borders

IE payment from US to China takes 1 min

XRP builds up in China and gets depleted in the US faster than it is returned (trade imbalances)

US goes on buying from China using up more and more XRP

At some point the XRP has to be brought back to the US because it is in the wrong place (the full cycle).  This is not that simple and would I presume involve market makers with strategic vostro nostro accounts of some sort and the "full cycle" would happen at intervals of perhaps days.

Your theory might be true if you were thinking of one exchange in one country in one currency

Their is also all the money tied up in smart contracts.

You are also talking of volumes in the order of thousands of times higher than at present across hundreds of exchanges in hundreds of countries with large amounts of XRP stuck in eddies and backwater.  Higher vol means higher value of the token to make the system work

 

Edited by Julian_Williams

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7 hours ago, xrpsailor1 said:

I have been googling "XRP velocity" because my mind has been coming back to the same question recently. I am trying to think who will really be holding xrp besides speculators. Joelkatz said some companies like uber and airbnb could hold it, but really he is just saying they would become market makers. Xrapid will create a lot of market takers, to fill the vacuum will be a large supply of market makers. The single largest holder of XRP, outside of speculators, will be market makers in my mind. Shore, maybe some institutions and FI's may hold XRP on their balance sheet, but it will always be hedged 100% negating any impact of their holding XRP and reducing the circulating supply. The bottom line is that it will be similar to the USD and Gold. What I mean is that the only thing giving the USD value is someone elses willingness to accept it. Much of the value in gold is a self fullfilling prophecy that it will hold value. Initially speculators will hold significant percentages of XRP, but we all have a goal in our heads right? In the future, as the price rises and people such as myself sell out, less XRP will be held by speculators and more will be placed into the circulating supply. The key will be to get out at the highest ratio of Volume/Circulating supply. In other words, it is likely XRP will have a huge speculative run up once real world volume really gets going, and it is my reckoning that could hit the highest price for the next 20 years (volume would need time to catch up to all the speculative supply that will be released). The good news is that the market makers will always have an incentive to provide for the market takers and market takers will provide for the market makers, speculators are not needed, just along for the ride.

Wow, the more successful XRP is as a utility currency the less people will want to hold it as a store of value and investment?  Don't you think that perhaps you are scraping the barrel a bit there?

So lets get this right.  XRP will not go up in value because

  • It can do too many transactions a day
  • Its a bankers coin that the banks will not use, and if they use it will be a scam.
  • It is too good an investment so everyone will make their money and sell it.

 

Edited by Julian_Williams

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I'm going to ask a question that might have been answered but it might help in this matter.

If bank a wants to transfer money to bank D using exchanges b and c, at £1 for example how much xrp is needed to transfer £1 million? Is it 1 million xrp so a 1:1 ratio? Or does it go down to a hops level as in 1.0781 xrp per £1? If the price of xrp rises is less needed by the banks? 

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Why are people talking about a transaction turnaround time?  Nothing 'turns around'. 

The value (and XRP) are moved down the corridor to the other end.  In general, remittance flows are preferentially biased in one direction.  If nothing else happens,  that means XRP price rises at the sending end and falls at the recieving.  That creates an arbitrage opportunity so something will happen...

Someone with pre-positioned funds will be working that to profit by the back flow.  All of this is complex and has multiple participants with differing agendas acting on varying timescales and bears no relation to a 'turnaround' time.

Any calculation that merely calculates rough 'turnaround' times is so far from reality that it is nonsensical to try it.  If you see that word used in a calculation you know it's going to be unrealistic.

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2 minutes ago, Tinyaccount said:

Why are people talking about a transaction turnaround time?  Nothing 'turns around'. 

The value (and XRP) are moved down the corridor to the other end.  In general, remittance flows are preferentially biased in one direction.  If nothing else happens,  that means XRP price rises at the sending end and falls at the recieving.  That creates an arbitrage opportunity so something will happen...

Someone with pre-positioned funds will be working that to profit by the back flow.  All of this is complex and has multiple participants with differing agendas acting on varying timescales and bears no relation to a 'turnaround' time.

Any calculation that merely calculates rough 'turnaround' times is so far from reality that it is nonsensical to try it.  If you see that word used in a calculation you know it's going to be unrealistic.

I agree, it is ridiculous to suggest a coin will go round and round thousands of times a day staying at the same price.  Each transaction is going to affect the price, usually in an upward direction because people try to sell for a profit unless there is a glut of supply and they are trying to cut their losses.   Transactions are like volume, they push the price up.

 

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30 minutes ago, Tinyaccount said:

Why are people talking about a transaction turnaround time?  Nothing 'turns around'. 

The value (and XRP) are moved down the corridor to the other end.  In general, remittance flows are preferentially biased in one direction.  If nothing else happens,  that means XRP price rises at the sending end and falls at the recieving.  That creates an arbitrage opportunity so something will happen...

Someone with pre-positioned funds will be working that to profit by the back flow.  All of this is complex and has multiple participants with differing agendas acting on varying timescales and bears no relation to a 'turnaround' time.

Any calculation that merely calculates rough 'turnaround' times is so far from reality that it is nonsensical to try it.  If you see that word used in a calculation you know it's going to be unrealistic.

As far as I can assume the market makers/LP will be the key to the whole operation, not the traders, altho they will contribute to the volume but not in any integral way.

The market makers will be turning around the  Zerps 24/7/365, Zerps being clone of each other and not having any individual personalities(somehow Julia Dreyfus from Seinfeld popped in when she differentiates the circumcised and non circumcised penises, weird I know) in a way will be turned around. The revolution in payments industry which Ripple is bringing will need plenty of participants outside of the average traders.

The main point which these fudsters/ignorants miss is volume will increase the price. Usdt(stable coin) has volume because it's traded with other volatile assets, there will be no interest if you keep trading stable/stable currency.

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I like and have done my own "ledger closes per day" analysis. The cool thing about that is that from a Liquidity Provider's point of view, you can serve up a lot more international cashflows with less capital floated or tied up. This represents an increase in a type of capital leverage, that the liquidity provider can achieve.

The velocity of XRP through xVia also provides to corp treasury departments of product/service firms, an opportunity a kin to the savings (capital efficiency gains) that Dell achieved from deploying Just In Time inventory. Except this would be "just in time liquidity" 

---

Dont forget about the the bottleneck on utility value, utility value being one key basis for XRP's valuation. 

The bottleneck on velocity is the 1500 tps, and fee escalation https://developers.ripple.com/known-amendments.html#feeescalation

Quote

Each consensus round prioritizes transactions from the queue with the largest transaction cost (Fee value), and includes as many transactions as the consensus network can process. If the transaction queue is full, transactions drop from the queue entirely, starting with the ones that have the lowest transaction cost. 

At this point, if you really need to get your transaction through the network you can... https://developers.ripple.com/transaction-cost.html#specifying-the-transaction-cost

Quote

Before signing a transaction, we recommend looking up the current load-based transaction cost. If the transaction cost is high due to load scaling, you may want to wait for it to decrease. If you do not plan on submitting the transaction immediately, we recommend specifying a slightly higher transaction cost to account for future load-based fluctuations in the transaction cost.

This is important because it is a cap on velocity of XRP transactions per time. Once this bottleneck is common place every ledger close (I expect it will always be maxed out at some point)  it will be common place for transactions to pay a higher fee in XRP, which has 3 impacts on value.

1. Remember the Fee Value, is burned when the transaction is processed... so increasing TX fees, increases the speed that XRP is burned, and decreases supply of XRP at a faster rate.

 

2. More importantly, lets say you are a Market Maker or Liquidity Provider, and you are utilizing XRP in your seeking of arbitrage trading opportunities. (This is very back of the napkin)

With 1 XRP at the minimum 10 drop TX fee,  you can pay a maximum of 100,000 TX fees per XRP. Perfect, You plan on doing 100,000 TXs over a year, and only need 1 XRP to do so. 

Now, if the XRPLedger doubles the cost of the TX fee, you reduce by 1/2 the utility value of your XRP inventory. ie the # of transactions you can trade is now only 50,000... Meaning that you now need double the XRP inventory (so you can make your 100,000 trades).

If you go back to the open market to buy more XRP, so you can do your planned 100,000 transactions, you will be placing up side pressure on price. If the value of XRP's price to doubles,  the dollar value per transaction you are paying has gone up by 4x (2x from doubling the TX fee + 2x from XRP price increase)

At some point XRP may become too expensive for you, because the transaction costs offset the arbitrage profits from your trading activity. :shock: THIS IS HORRIBLE!!!

At this point, your arb trade has been price out of the market, and other traders who have more profitable treading business to do, and can gain more utility value (aka they can afford to pay more for XRP)... these new more profitable traders (institutionally advantaged guys) will take over driving the cost & price of XRP's utility valuation. 

 

3. Most importantly... The utility value of XRP should be calculated like that of a "forever stamp" from the USPS, by doing a present value on the utility of the XRP/Stamp. Think about the scenario in #2, plus how the cost of postage has gone up over the years.

To do a  cashflow stream  "utilityflow stream" analysis... you would estimate the future utility value gained  (profit gained) from doing XRP trades, each trading year. If the cost of these trades, like the cost of mailing a letter as part of conducting business,  happens to have an upward pressure on cost per transaction, it becomes obviously difficult to forecast.  (I actually did this for a friend who spend $1000 on those when they first came out, and if I remember right he had around a 20% annual return on utility value. Ran the numbers a few years, and a few price hikes after he bought them).

Anyway, the key point is that when you run the present value formulas on a situation like this, as the cost of transactions (cost of postage) increases, the present value of the unit that grants you that utility (XRP/Stamp) increases with a compounding nature. 

I dont expect any of these market dynamics factors to kick in till the 1500 TPS is maxed out continuously, then drive fees up.

 

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