Key Points:
- XRP has legitimate partnerships with major banks like Bank of America and JPMorgan Chase.
- The majority of Ripple’s bank partners use RippleNet technology without requiring XRP, limiting demand for the cryptocurrency.
- Stablecoins may offer banks the benefits of XRP without the volatility risk, potentially reducing XRP’s adoption prospects.
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With Bitcoin hitting new records, some investors wonder if XRP (CRYPTO: XRP) could be the next big winner. Is now the time to bet on XRP’s comeback–or is the millionaire-maker story mostly hype?
XRP: Legit or Hype?
Let’s start with the basics. XRP is a legitimate digital asset with real, tangible use cases. It enjoys relatively widespread adoption from both retail traders and institutional investors. That alone makes XRP stand out; the crypto market is, unfortunately, chock-full of tokens that range from frivolous to fraudulent. XRP is neither.
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Ripple Labs — the private company that created XRP and offers products that make use of it — has partnerships with major financial institutions like Bank of America and JPMorgan Chase. It’s clear that the technology works and is secure; institutions such as these would not touch it if it were otherwise.
The primary driver of XRP’s growth is the strength of these institutional partnerships — at least, that is the idea. If major institutions such as these use Ripple Labs’ products, they would need to stockpile XRP in order to transact with it. Right?
The Catch: Banks and XRP Usage
There’s a catch here, and an important one for understanding XRP’s real value. Ripple Labs offers two primary products with very different relationships to XRP itself: RippleNet and On-Demand Liquidity (ODL).
ODL is designed to help facilitate cross-border transactions and requires its users to hold XRP. With ODL, XRP is used as a bridge currency. The problem is that the majority of Ripple Labs’ bank partners — and all of the major ones like Bank of America — don’t have a need for ODL. They use RippleNet, which facilitates settlements between banks using Ripple’s technology, but not XRP itself. ODL is the go-to when liquidity is an issue, and major financial institutions don’t usually have that problem.
That means that even as the adoption of RippleNet grows, it does not lead to demand pressure for XRP. Big banks are using technology adjacent to XRP, not XRP itself.
The Stablecoin Threat
Where direct adoption of XRP by large financial institutions hasn’t materialized, it’s clear they are not averse to using crypto at all. Stablecoins offer many of the advantages of XRP — speed, cost, in-built recordkeeping — without its worst quality: volatility. A bank takes on huge risk by holding any significant portion of XRP at any given time since the token can lose 10% of its value at the drop of a hat.
