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ODL question

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21 hours ago, opaopa said:

I guess that the theory why the two conversions would be superior to one is that, at scale, the two conversion would be cheaper than one traditional conversion.

That's an intermediate step to the final solution: holding XRP as treasury. Then using ODL to go from XRP directly to whatever currency you want on the fly. Or even just send XRP without conversion anymore.

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Fascinating article, thanks for sharing it!  The author's knowledge of the remittance world is very helpful even if they don't follow crypto.

Their basic point seems to be MG has been mismanaged and Ripple will not save them because at best it only frees up about $50m in cash they must keep on hand.  This seems like a reasonable opinion from someone who understands transfer companies.  He really makes this clear in one of the comments at the end answering the question, "Will Ripple save MoneyGram,"

Quote

A detailed answer to your question is in the above article. In short, Ripple, in theory, if it works and replaces Moneygram's current rails, would only have a positive impact on the amount of funds that Moneygram needs to have in destination countries for unbalanced corridors. That amount seems to be less $50 million globally on any given day. However, this improvement would have no impact on Moneygram's ability to stop losing market share vs. much better managed Fintech startups.

Like others have mentioned, I don't think they understand that the much shorter trade window times reduces volatility overall, and the discussion quickly slides into the volatility of MGI's stock price that is a result of the "XRP Army" buying XRP.  This did not make sense.  I would like to know if/when Ripple is not paying them to use corridors, how much cheaper the atomic TX costs are using Ripple compared to using cash as well as holding it.  

The 2 conversion issue is an interesting point. It really asks the question, "how is XRP different than fiat?". My hunch is that because they are digital and atomic, there are a lot of other hidden, sunk costs that they eliminate making them cheaper overall. @opaopa makes some interesting points, but I'm curious how some of the things @BobWay said about the margins for market makers might counter this, and whether or not MGI can be considered one.

The author seemed annoyed at the vague but promising mentions of RIpple in earnings reports, but to be fair there have only been two that mentioned Ripple.  I think Q4 will tell a different story as more corridors open, but I have no doubt MG is a troubled company.  I think of it as a great way for Ripple to purchase regulatory compliance.

Final thought:  The description of the MG - Ria battle is fascinating and eye opening, even moreso now that Walmart has officially brought them together on their Walmart2World platform.  It reinforces my belief that Walmart is going to play a big role in Ripple's growth eventually.

 

 

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1 hour ago, WrathofKahneman said:

Fascinating article, thanks for sharing it!  The author's knowledge of the remittance world is very helpful even if they don't follow crypto.

Their basic point seems to be MG has been mismanaged and Ripple will not save them because at best it only frees up about $50m in cash they must keep on hand.  This seems like a reasonable opinion from someone who understands transfer companies.  He really makes this clear in one of the comments at the end answering the question, "Will Ripple save MoneyGram,"

Like others have mentioned, I don't think they understand that the much shorter trade window times reduces volatility overall, and the discussion quickly slides into the volatility of MGI's stock price that is a result of the "XRP Army" buying XRP.  This did not make sense.  I would like to know if/when Ripple is not paying them to use corridors, how much cheaper the atomic TX costs are using Ripple compared to using cash as well as holding it.  

The 2 conversion issue is an interesting point. It really asks the question, "how is XRP different than fiat?". My hunch is that because they are digital and atomic, there are a lot of other hidden, sunk costs that they eliminate making them cheaper overall. @opaopa makes some interesting points, but I'm curious how some of the things @BobWay said about the margins for market makers might counter this, and whether or not MGI can be considered one.

The author seemed annoyed at the vague but promising mentions of RIpple in earnings reports, but to be fair there have only been two that mentioned Ripple.  I think Q4 will tell a different story as more corridors open, but I have no doubt MG is a troubled company.  I think of it as a great way for Ripple to purchase regulatory compliance.

Final thought:  The description of the MG - Ria battle is fascinating and eye opening, even moreso now that Walmart has officially brought them together on their Walmart2World platform.  It reinforces my belief that Walmart is going to play a big role in Ripple's growth eventually.

 

 

I am no expert - but would it be possible for two exchanges doing a lot of business with each other to match/net off XRP and only convert the surpluses/imbalances at the end of the day?  Thus saving conversion charges.

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30 minutes ago, Julian_Williams said:

I am no expert - but would it be possible for two exchanges doing a lot of business with each other to match/net off XRP and only convert the surpluses/imbalances at the end of the day?  Thus saving conversion charges.

Netting the difference, and batching payments etc are all just stages towards the most logical end point...  paying in XRP directly.

Unless the wheels fall off it seems to me that all treasuries will end up just having an XRP bag.  

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13 minutes ago, Tinyaccount said:

Netting the difference, and batching payments etc are all just stages towards the most logical end point...  paying in XRP directly.

Unless the wheels fall off it seems to me that all treasuries will end up just having an XRP bag.  

Yeah seems so, and also the case Ripple has made all along.

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I did some further research and I think most are mistaken on the point the article tries to make about two FX conversions: It is the total spread in the transaction which is the problem.

While the end customer - in this case Moneygram as the customer of Ripple - is exposed to very little FX risk when using ODL, someone in the transaction definitely is exposed to FX risk, which is the market maker. The market maker is the person who is providing the ODL to the customer and the one who will be holding the XRP in return for providing the liquidity in the fiat currency. Lets theorise that the market maker is a company. In the end, the company can not pay its employees or its taxes with XRP, but rather it wants to cash out in fiat (this is the current state, lets keep to discussing current circumstances). It will measure its profit in fiat. Hence, holding XRP means FX risk.

So why would they want to provide liquidity and hold XRP to begin with? Because it is earning a bit on every transaction. In every fx exchange there is a bid and ask price, and the space between them is the spread. The spread is the hidden commission that the liquidity provider earns on each transaction. As such, the spread is a measure on the level of compensation that the liquidity provider requires to accept the FX-risk (and all other costs associated to the final profit). A spread is an indicator of how effective the process is for the liquidity maker to achieve its final profit. Spread varies a lot between different fiat pairs, for example on one forex trading market i viewed the lowest spread of the listed fiat pairs was for EUR/USD (0,014%), which makes sense since the two financial systems of Europe and USA is heavily linked and the corridors are very efficient. Other smaller currencies have higher spreads, for example USD/TRY (1,50%).

Lets calculate the spread you would need to pay comparing Western Union and a USD -> XRP -> MXN conversion.

 

Spread USD/MXN Western Union: 
Price 1USD/MXN: 19,128
Price MXN/1USD: 19,153
Spread: 0,13%
Source Western Union web page.

Total spread of 0,13% (but I'm unsure of other fees, alternatively, the spread listed on https://www1.oanda.com/forex-trading/markets/live when i checked it was ~ 0,5%.)

 

Spread USD -> XRP -> MXN:
Spread XRP/USD: 0,35% according to https://www.coingecko.com/en/exchanges/bitfinex
Spread XRP/MXN: 0,36% according to https://www.coingecko.com/en/exchanges/bitso

Total spread: 0,71%

 

So the problem with changing currencies two times is that you are doubly affected by spreads.

But this i still only a simplification of the final cost of the transaction since what also matters is depth in liquidity and the amount of slippage depending on what volume of currency you are transacting. This is what ODL is offering to institutions right now, no matter what you believe that ODL might potentially offer in the future.

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1 hour ago, opaopa said:

I did some further research and I think most are mistaken on the point the article tries to make about two FX conversions: It is the total spread in the transaction which is the problem.

While the end customer - in this case Moneygram as the customer of Ripple - is exposed to very little FX risk when using ODL, someone in the transaction definitely is exposed to FX risk, which is the market maker. The market maker is the person who is providing the ODL to the customer and the one who will be holding the XRP in return for providing the liquidity in the fiat currency. Lets theorise that the market maker is a company. In the end, the company can not pay its employees or its taxes with XRP, but rather it wants to cash out in fiat (this is the current state, lets keep to discussing current circumstances). It will measure its profit in fiat. Hence, holding XRP means FX risk.

So why would they want to provide liquidity and hold XRP to begin with? Because it is earning a bit on every transaction. In every fx exchange there is a bid and ask price, and the space between them is the spread. The spread is the hidden commission that the liquidity provider earns on each transaction. As such, the spread is a measure on the level of compensation that the liquidity provider requires to accept the FX-risk (and all other costs associated to the final profit). A spread is an indicator of how effective the process is for the liquidity maker to achieve its final profit. Spread varies a lot between different fiat pairs, for example on one forex trading market i viewed the lowest spread of the listed fiat pairs was for EUR/USD (0,014%), which makes sense since the two financial systems of Europe and USA is heavily linked and the corridors are very efficient. Other smaller currencies have higher spreads, for example USD/TRY (1,50%).

Lets calculate the spread you would need to pay comparing Western Union and a USD -> XRP -> MXN conversion.

 

Spread USD/MXN Western Union: 
Price 1USD/MXN: 19,128
Price MXN/1USD: 19,153
Spread: 0,13%
Source Western Union web page.

Total spread of 0,13% (but I'm unsure of other fees, alternatively, the spread listed on https://www1.oanda.com/forex-trading/markets/live when i checked it was ~ 0,5%.)

 

Spread USD -> XRP -> MXN:
Spread XRP/USD: 0,35% according to https://www.coingecko.com/en/exchanges/bitfinex
Spread XRP/MXN: 0,36% according to https://www.coingecko.com/en/exchanges/bitso

Total spread: 0,71%

 

So the problem with changing currencies two times is that you are doubly affected by spreads.

But this i still only a simplification of the final cost of the transaction since what also matters is depth in liquidity and the amount of slippage depending on what volume of currency you are transacting. This is what ODL is offering to institutions right now, no matter what you believe that ODL might potentially offer in the future.

I certainly worry about the mm holding bags of xrp that are subject to volatility when trading is slow. I do wonder about a mm that has XRP worth a million dollars one evening waking up to find their stock is now worth only 750k dollars - I have often wondered how a mm covers that risk.

Ripplenet provides ODL as a pre-priced option, so if the spread on a transaction is prohibitively expensive on one day in one corridor, against using messaging to banks with vostro nostro accounts, the user can choose the cheapest and ignore the expensive method.  As you admit in corridors like USA to Euro the spread is likely to be more competitive, in corridors to exotic backwaters the competition is likely to be a lot less competitive allowing for a higher charge.

Part of the attractiveness of ODL is that small FX companies can set up cost effective alternatives to services provided by big banks.  In fact big banks sometimes do not even bother to provide any services to exotic destinations, so the opportunity for a market maker/FX provider to start up in countries like El Salvador are wide open.  All the new company has to do is hold XRP in its native country and provide one end of the corridor to say the US.

Edited by Julian_Williams

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5 hours ago, opaopa said:

This is what ODL is offering to institutions right now, no matter what you believe that ODL might potentially offer in the future.

You are missing a critical piece.  Just like Visa did in its early days,  Ripple are subsidising mm’s when necessary to get the pump primed.  That’s the benefit and beauty of the war chest...  it gives Ripple the capability to prime the pump when the organic path would be to slow to initiate.  
 

So that subsidisation and cost reduction will ensure that the paths as they are built both,  have liquidity, and are profitable for the participants.   MM’s and Moneygram and all ODL participants are essentially guaranteed the profitability of that corridor.
 

What you are concerned with in your post is the last thing I worry about in ODL.

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1 hour ago, Tinyaccount said:

You are missing a critical piece.  Just like Visa did in its early days,  Ripple are subsidising mm’s when necessary to get the pump primed.  That’s the benefit and beauty of the war chest...  it gives Ripple the capability to prime the pump when the organic path would be to slow to initiate.  
 

So that subsidisation and cost reduction will ensure that the paths as they are built both,  have liquidity, and are profitable for the participants.   MM’s and Moneygram and all ODL participants are essentially guaranteed the profitability of that corridor.
 

What you are concerned with in your post is the last thing I worry about in ODL.

How much is Ripple spending/using to subsidize this system to the point that it grows on it's own, and what does the path to sustainability look like? 

Does RippleNet Home encourage/allow FI's to hold XRP (to further reduce costs)? If so, does it make the process of buying/holding simple and straightforward (within the app)?

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1 hour ago, XRPboi said:

How much is Ripple spending/using to subsidize this system to the point that it grows on it's own, and what does the path to sustainability look like? 

Does RippleNet Home encourage/allow FI's to hold XRP (to further reduce costs)? If so, does it make the process of buying/holding simple and straightforward (within the app)?

Excellent questions that none of us on the outside know (as far as I know).  

However there are a few clues.  David has says more than once that they were surprised in the early days by how quickly organic usage popped up to make MM a viable enterprise WITHOUT subsidy.  So it’s likely that they won’t need to do it for long.

Secondly they have enough on hand to prime the pump with subsidies for however long it takes.

Thirdly there are as-yet hidden/unknown options such as Polysign and whatever (if anything) XPool is.

Really the mm issue is not one I worry about...  it’s either going to grow organically or it can be primed for ages until XRPTheStandard.  :) 

 

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17 hours ago, Tinyaccount said:

Netting the difference, and batching payments etc are all just stages towards the most logical end point...  paying in XRP directly.

Unless the wheels fall off it seems to me that all treasuries will end up just having an XRP bag.  

that to me is what this path is looking like.  its also the path I am betting on.

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