“Ripple is highly centralized & XRP is more akin to a PayPal account than a trustless system like bitcoin.... It's hard to come up with any rational reason why XRP exists in the Ripple protocol, other than as a means for Ripple to make money. Lots of money.“
XRP, the Ripple token, is unlike any other crypto token in the market. It is entirely centrally controlled, operating more like an ETF unit than anything else since the issuer has the capacity to release or absorb (pre-mined) tokens in accordance with their valuation agenda. More egregiously though, the token plays little part in Ripple’s central business case. For the most part it’s just a cute add-on. A game, which for some unknown reason has become the central value proposition in the project these days. All very, very weird.
That’s not to say Ripple didn’t want the token to play a central role in its business case, it’s just that their vision of XRP becoming a bridging or conduit currency through which liquidity providers would de facto offer seamless and cheap FX settlement services to the world never really caught on with industry. Yes, technically the potential is still there. But that’s not what Ripple’s banking partnerships are all about at all. They’re focused instead on messaging protocols (which record payments on a shared ledger) that compete directly with Swift and for which, we are told, tokens are not required.
Okay. But what if XRP — “the bridging currency” — did become the central value proposition in the model in the future? Wouldn’t this constitute a truly innovative breakthrough?
Not really.
The bridging-currency proposition is centred on the idea of outsourcing FX settlement to third-party market-makers/liquidity providers, who have an incentive to step into the market whenever relative FX valuations are out of whack vis-a-vis XRP, thus reducing transaction costs.
Ripple “the settlement tech” is thus arbitrage tech, highly dependent on the whims, activities and behaviours of its liquidity provider community. This means it’s partial to the same exact problems HFT suffers from: namely, the fact there’s no guarantee liquidity providers will always be around when you really need them. In FX this sort of solution doesn’t really cut the mustard. People want a dependable FX service, not one that’s subject to the whims of unknown third-party participants.
