The principal target audience of XRP is for banks and payment providers, where the exceptionally fast settlement time can function as a liquidity source that circumvents pre-funding nostro accounts and provides payment services in new markets at lower costs, respectively. An optimal perspective of XRP is a cryptocurrency that unlocks several points of friction in the international banking and payments market, from transaction delays and high fees to institutional liquidity hurdles.
The firm Ripple was formed in 2012 under the corporation OpenCoin, and development on the early iteration of XRP officially began under Jed McCaleb and Chris Larsen in late 2012.
Currently led by CEO Brad Garlinghouse, Ripple has received financial backing from several prominent investors and VC funds as well as having launched three primary financial products -- xCurrent, xRapid, and xVia.
XRP’s Design and Use Cases
XRP is primarily used as a means of payment and liquidity within Ripple’s RippleNet -- its global payments and liquidity network. Essentially, XRP functions within a distributed ledger where transactions are processed and settled via gateways -- akin to a series of private blockchains.
The Ripple Transaction Protocol is the core of the network which enables participating users and entities (i.e., financial institutions) to send and receive XRP (or fiat currencies) with a settlement time of 4 seconds and negligible transaction fees. RippleNet can process roughly 1,500 transactions per second (TPS).
There are currently more than 200 banks and payment providers in the RippleNet ecosystem.
RippleNet also enables participants to rapidly exchange fiat currencies and cryptocurrencies, making it an ideal solution for institutions moving large sums that are looking for a quick settlement and low transaction costs. However, within RippleNet, XRP functions more as a liquidity source for the exchange of currencies than a pure cryptocurrency in the sense of Bitcoin.
The network is controlled by a set of validators, which makes the network more centralized than a public blockchain such as Bitcoin or Ethereum -- although Ripple plans on making more strides in decentralizing the protocol.
Financial Products and Target Audience
The primary target audience of RippleNet and XRP are financial institutions (i.e., banks) and payment providers. Ripple’s chief financial products -- xCurrent, xRapid, and xVia -- all target financial institutions, payment providers, and enterprises.
Of the three primary products, xCurrent is the most popular and is viewed as a rival to the outdated SWIFT system. Essentially, xCurrent empowers banks and payment providers to process cross-border payments with swift settlement times, low costs, and bidirectional messaging. The vast portion of Ripple’s financial customers are users of the xCurrent product.
However, XRP is not actually required in the xCurrent system.
Rather, xRapid is Ripple’s product that leverages XRP for liquidity sourcing. Referred to as ‘on-demand liquidity,’ xRapid is a system for reducing the need for nostro accounts that subsequently lower liquidity costs for international payments. xRapid is an add-on option to xCurrent, with XRP functioning as the intermediary digital asset that unlocks liquidity.
xVia is a payments interface with APIs for businesses to plug into the RippleNet and make payments -- XRP is not required.
Ripple sells XRP to financial institutions, and reported total sales for Q1 2019 of $169.42 million, with institutional sales accounting for $61.93 million of the total. Ripple is also behind Interledger, the cross-ledger payment protocol.