If one cryptocurrency can carry the weight of financial adoption on its back, it could very easily be XRP. In recent times, Ripple has made quite a bit of progress with popularizing XRP. Its On-Demand Liquidity (ODL) feature, formerly known as xRapid, is pretty much the closest thing to mainstream adoption of cryptocurrencies, especially for financial institutions.
After concluding a mouth-watering deal worth $50 million, Ripple now owns 9.95 percent of MoneyGram’s common stock. However, with all of the good news, there might be one major factor preventing a proper commercial XRP take-over.
What Is Slippage?
Slippage is a term that describes the difference in trading, between the expected price of an asset and the price at which the trade is eventually executed. Slippage happens in pretty much every financial market and will happen to every trader at some point or another. Slippage can be quite common with volatile markets and as far as volatility is concerned, the crypto market takes the crown.
Slippage happens with market orders where there is the regular bid/ask spread, denoting the price at which a buyer wants to buy and the price a seller is willing to accept. This difference could be problematic.
How Is This A Problem?
The problem is really simple. If, for example, XRP’s bid/ask spread is $20.35 by $20.37, it would make sense that you would spend $20.37 per XRP. However, there is the ever-present chance that volatility can shift the price from $20.37 to $20.40.
On the surface, a price shift like that may not do much for the market but it could be the difference between profit and loss. If a bank decides to buy 1,000,000 XRP at $20.37 but the price shifts to $20.40 in an instant, that’s a loss of at least $400,000!
No bank wants that.
The amount of money transacted by most banks on a daily basis is a lot more than 1,000,000 XRP’s worth. With the description above, Slippage could mean that these banks could lose a fortune in just a few seconds.
On one hand, it might make sense to involve third parties that will handle a lot of small amounts. This means that even with slippage, the losses incurred on individual trades are not dangerous. On the other hand, this might simply be wishful thinking. If a major multinational institution was to rely on ODL, how many smaller transactions would it require to handle several trillion dollars every day?
Also, as far as markets are volatile, slippage will never go away. This means that as much as crypto proponents want adoption for financial institutions, XRP or not, it just might never happen. Or will it?