Recently, Breanne Madigan, head of global institutional markets at Ripple, explained how XRP could be a well-suited means for arbitrage trading:
XRP as we now know it first saw the realm in 2013. Although the company itself, Ripple Labs, Inc. has been around since 2012 under the name of OpenCoin, it was only three years later that it was rebranded as Ripple Labs. The following year, 2016, it obtained a virtual currency license, and that symbolized the start of XRP’s actuality.
The digital currency operates on the XRPL network, the main purpose of which is to facilitate payments and transactions between financial institutions. Unlike any other cryptocurrency, Ripple’s XRP is used as a “bridge” between different currency pairs. For instance, to convert USD into EUR, one would need to take into account the spread, or informal fees, set up by the host bank for the conversion. However small it may be for an individual transition, it will reach an imposing level if the conversion is taken on a business-level, where millions are in question.
When there’s a need, there’s a way – and that’s where Ripple steps in. Having identified this opportunity, the company found a solution by creating a seamless network used by banks, money lenders, and other corporate clients – RippleNet. The idea behind it is to make money transfers between subsidiaries as simple as possible while bringing the transaction and currency conversion rates down. Within one network, businesses can now make cross-border transfers without being afraid of unnecessary extra costs associated with each transaction.
Another noteworthy thing is the speed of payments. While in a conventional banking system, a simple transfer execution may take up to a few days, Ripple makes the whole process instant (as opposed to widescale cryptocurrencies like bitcoin and ethereum, whose blockchains settle payments for 10-15 min). On top of this, payments through Ripple have a very broad geographical scope, allowing companies to make transfers to locations that otherwise would be hard to access (e.g. in countries which do not support IBAN).
Needless to mention, Ripple also functions outside the scope of governmental and other supervising institutions, which gives organizations flexibility and freedom of third-party control. In the meantime, to make sure that none of the funds will get lost on their way, the system through which Ripple executes transactions provides safe and reliable tracking of each payment, which makes transfers almost risk-free.
Essentially, when having holdings on exchanges, traders will be able to capitalize on a small difference in the price of the token between exchanges. Because the processing time of transactions is almost instant, XRP can move from one place to another instantaneously. Once the gains are received, however, all funds can be moved from multiple to a single exchange to avoid the risk of a hacker invasion. This way, Madigan believes traders can benefit from the digital asset, which makes the cryptocurrency project equally suitable not only for corporates but for individual traders too.