Can ILP Ledgers function without a base currency?

[bitisbetter]

https://ark-invest.com/articles/analyst-research/bitcoin-myths/

Edited April 25, 2021 by pyskell
providing clarity

[jmar42]

If you have various assets  established with a certain currency there wouldn't be a need for a base currency.  An example is if USD is used with Asset A and Asset B.  USD would be used if both parties are using USD.  Only when there are mulitple currencies is there an issue. Maybe user XYZ has Asset A and sells it to user ZZZ with Euros then there is a conversion in there somewhere and both partys need a counterparty for the currency. But, if both parties are using USD for Asset A, money and Asset A changes ledgers with no native needed.

[Dennis]

There are two important points to consider.  

1.  In order for there to be a market, there needs to be liquidity.  Which means market makers (MM) need to provide liquidity for that trading pair.  See example below:

Quote

Although some retail dealers trade exotic (less popular) currencies such as the Thai baht or the Czech koruna, the majority trade the seven most traded currency pairs in the world. The four most popular, also known as "the majors" are:

EUR/USD (euro/dollar) – "euro"
USD/JPY (U.S. dollar/Japanese yen) – "gopher"
GBP/USD (British pound/dollar) - "cable"
USD/CHF (U.S. dollar/Swiss franc) – "swissie"

The three less popular commodity pairs are:

AUD/USD (Australian dollar/U.S. dollar) – "aussie"
USD/CAD (U.S. dollar/Canadian dollar) – "loonie"
NZD/USD (New Zealand dollar/U.S. dollar) – "kiwi"

These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP) account for more than 95% of all speculative trading in FX. Given the small number of possible trades - only 18 pairs are actively traded - the FX market is much less broad than the stock market. (For more, see Top 8 Most Tradable Currencies and Popular Forex Currencies.)
 

Source

Now this is an example from the Forex markets, digital currency is even less.   So if you are a bank in Japan who want's to send money to another bank in (not the US) you find almost zero traction.  Since XRP is the base asset you are much more likely to use a route through XRP .

 

2.  And this is the bigger one:

Quote

Why is Ripple not creating proprietary coins for banks and instead encouraging them to use XRP?

It’s simple, actually. “Every bank wants their name on it, but no bank wants any other bank’s name on it,” explains Thomas. “So it presents this stalemate where they all create their own coin but then maybe can’t get anyone else but their own daughter banks and their own club to use it, at which point the value isn’t there. Settlement assets are valuable if they’re widely accepted across all organizations.”

Which is why Ripple has been able to get so much traction already, as they’re a neutral party to work with, as opposed to another big bank—and why XRP, not a bunch of other proprietary coins, is the solution that Ripple is exclusively selling to banks.

Source

Hope that answers your question!

[jmar42]

The native only comes into play when multiple currencies are used because that bank will need to take a position for the fx conversion. The position is capital used and sitting to facilitate the fx, the XRP enables a bank no need for the conversion because of the existing market of XRP in the currency IOU.

[Dennis]

Read this:  

the basic answer to your question regarding ILP is that the protocol will always search for the fastest path. Technically there are other options, but there is no faster path than XRP. 

[tulo]

On 6/7/2017 at 3:01 PM, Dennis said:

Read this:  

the basic answer to your question regarding ILP is that the protocol will always search for the fastest path. Technically there are other options, but there is no faster path than XRP. 

It's not true. Every path involving private ledgers is faster than XRP. XRP can take seconds, while private ledgers take milliseconds. So a FIAT-->USD-->FIAT is probably faster and with less fee because USD is way less volatile than XRP.

[Guest]

26 minutes ago, tulo said:

It's not true. Every path involving private ledgers is faster than XRP. XRP can take seconds, while private ledgers take milliseconds. So a FIAT-->USD-->FIAT is probably faster and with less fee because USD is way less volatile than XRP.

yep, xrp is only useful in "exotic corridors" i.e. currently illiquid pairs

that's why it's taking forever to get customers using it -- the most important places to get ripple tech working is the major corridors, which prob won't utilise xrp anyway

then once they establish trust and regular commercial use of the overall network, xrp can be used to bridge exotic pairs