XRP Holder Reacts To: "The XRP Problem No One Is Talking About

[00:00:00]Welcome back to the channel. Today we're going to the reaction to a video called The XRP Problem No One Is Talking About Published by Promo Ambitions. The link is in the description. I didn't know the channel before searching YouTube for XRP is trash, but he's got more than 200,000 views. So, it means a lot of people ask themselves the same questions.

[00:00:23]Apparently, more people than people asking about stable coins and XRP. So, let's answer it and put that topic behind us.

[00:00:35]>> Okay. I really need the help of the XRP community to un >> I'm delighted to help >> understand something because I was doing a thought experiment as far as what happens if Ripple's ondemand liquidity solutions become very very successful and have mass adoption and now XRP is being utilized by all these big banks and financial institutions to make crossborder payments and facilitate them and have them settle really quickly.

[00:01:08]>> Hold on. I want to be precise here because this matters for everything that follows. Payments are not settled.

[00:01:17]Claims are settled. XRP cannot settle a claim on someone's dollars. It can only settle a claim on someone's XRP. Only a dollar can settle a claim on someone's dollars. This distinction is actually the entire mechanism. So, let's keep it in mind.

[00:01:37]>> And I realized that if that were to happen, the success of the XRP ledger and adoption of Ripple's different offerings can actually spell the demise for XRP because theoretically the math doesn't really add up. And so, in this video, I'm going to share that with you, but I do want to preface it by saying I'm not a Forex expert. I am not somebody that's the smartest person in crypto by far. And so I want you to explain to me where I'm wrong in my thinking process. So, if an American bank was to go ahead and send $2.5 billion to a Mexican bank, okay, the way they would use Ripple's offerings and the XRP ledger and XRP to facilitate this process seamlessly and quickly is theoretically they would take $2.5 billion US and they would convert that to XRP on the XRP ledger. Then the Mexican bank would receive this XRP and also convert it into pesos. Now one peso is worth actually the banks themselves don't even need to touch XRP. They don't need to hold it. They don't need to transfer it.

[00:03:00]That's what market makers are for. The bank hands off dollars. The market maker buys XRP with those dollars and sells XRP for pesos. On the other end, the receiving bank sees pesos. The banks see a currency transfer. XRP is the invisible rail underneath 12th of the US dollar currently. So that would mean that a peso is basically in US dollars a nickel. Great. So, an important thing to mention is the US bank does not need to hold any XRP prior to using the XRP ledger and some of Ripple's ondemand liquidity solutions in order to send the 2.5 billion to the Mexican bank. The Mexican bank also does not need to have any preholdings of XRP.

[00:03:56]They also don't have to >> absolutely correct >> hold XRP after the transaction either.

[00:04:02]So there's no post holding that is not necessary. So the only time you have to hold the XRP is during the transaction itself while it's ongoing which might be 3 to 5 seconds. And that's actually great because it minimizes the risk of slippage. Okay. So let's say that's the case. Now let's discuss how many XRP was actually used in this transaction. So when the American bank took their $2.5 billion US and is trying to send it to a Mexican bank at the current price of $2.50 50 cents for an XRP. The US bank would have to have utilized 1 billion XRP just to facilitate this one transaction.

[00:04:53]Now, what is 1 billion XRP in the grand scheme of things? Believe it or not, it's actually a lot. So, the total supply of XRP is actually 100 billion.

[00:05:06]There will never be more XRP than 100 billion. And there's actually less because there is a bit of a burn mechanism. I made a whole video on XRP tokconomics. And by the way, don't even think of it as a 100 billion because there is something referred to as a circulating supply. And that's the amount of XRP that's actually circulating in the markets and being held in public hands. Some of those hands are holding. They're not selling.

[00:05:32]But there's only 57 billion as a circulating supply as of this point in time. Now, eventually it'll be more because there's a lot of XRP held in escrow. That being said, though, let's just say the circulating supply is 50 billion for theoretical sake. Using up 1 billion XRP just to send $2.5 billion to a Mexican bank, you've just used 2% of the actual circulating supply. And that is very much possible to do. That being said though, Swift, which everyone is saying the point of Ripple XRP is they want to compete with Swift. They want to take some market share away from Swift. If you are trying to compete with Swift that processes over $5 trillion per day, then you have to ask yourself, how much can Ripples's XRPL actually handle if XRP is the actual bridge currency being used? Liquidity.

[00:06:42]Two things here. First, Swift does not process money. Swift processes and transfers claims. It is a messaging system. It says X owes $100 to Y. The actual settlement of that claim is done by the member banks of Swift and it happens at a clearing house. Claims on dollars are settled with actual dollars and claims on euros are settled with actual euros. Lane plus settlement equals a transfer. You need both legs.

[00:07:17]Swift is only one leg. Second, you actually answered your own velocity question without realizing it. If that billion XRP is held for 3 to 5 seconds, then 3 to 5 seconds later, the billion is free to start over. That is velocity.

[00:07:35]And velocity is everything. The XRPL's theoretical maximum is around 130 million transactions a day. How much money does that represent? Essentially unlimited. It's just a matter of how you price XRP.

[00:07:52]Has to absolutely match the usage demand. So if you don't have enough sufficient liquidity to handle global payment flows, how is this all going to work? Small point, but worth clarifying.

[00:08:07]Liquidity isn't something that sits next to global payments. It is global payments. Every time XRP is bought with dollars and sold for pesos, that is a liquidity event. The payments create the liquidity. They're not separate things.

[00:08:27]So theoretically if Swift processes over $5 trillion per day and let's say the XRP ledger which is using XRP predominantly as the bridge currency is processing a trillion dollars per day right let's say 1/5if of swift or even less than that how is that even possible there's not enough and this is exactly what I meant earlier swift processes ledger entries not dollars. The number can be anything. The XRPL can match it and it matches the real money flow underneath too.

[00:09:11]Enough XRP to facilitate that. There is only 100 billion XRP that is ever going to exist at its maximum and it's actually less again because some of it gets burnt as you use the XRP ledger and also because XRP has been around for a long time. There are a bunch of locked wallets that people lost their keys.

[00:09:32]There are also a bunch of XRP tied up and escrow accounts, all that good stuff. But all that is to say, how does it work? It can't work because >> liquidity pool times velocity divided by the available tokens. That gives you the price XRP needs to clear those transfers in 3 to 5 seconds. That's how it works.

[00:09:56]The price is discovered on the open market where in every major public facing instrument less than 1% of the supply is being traded. The buying and selling by the market makers happens over the counter at the price discovered on the open market. If the open market prices drift, then OTC participants will be drawn to the open market like bees to honey for profit and bring the price back where it's supposed to be at a profit.

[00:10:28]There's not enough XRP unless the market cap is a lot higher.

[00:10:34]I can see you're only hinting at it, but forget that concept. Market cap. Remove it from your mind and never consider it again. Market caps don't do anything.

[00:10:47]This is where it gets very interesting because let's say that instead of one XRP being worth $2.50 as it is today, now let's say it's worth $2,500.

[00:11:03]So now one XRP is worth $2,500.

[00:11:08]Now if the American bank wants to use XRP to send $2.5 billion to a Mexican bank, they don't need to utilize 1 billion. Worth emphasizing, institutions don't administer XRP. They don't convert. They don't utilize. They don't hold XRP for transfers. There is only buying and selling of XRP. This is not a custody relationship. It is the flow relationship in XRP throughout that bridge currency transaction process. They actually now only need a million XRP. Now we're talking. But the price would have to be $2,500.

[00:11:56]It also begs the question of why would the price go up if the financial institutions if the banks do not need to actually hold any XRP prior to or afterwards and they just hold it for 3 to 5 seconds. Who is driving the price up? Now us early adopters now we're talking indeed. There are two parts in your question. Who drives the price up and why would institutions hold XRP?

[00:12:23]Let's start with the price. So as I said the price is discovered on the open market and liquidity is created over the counter. Right now the institutions can only use XRP in pilots and private agreements because there are no regulations to tell them for example where in the accounting books should they record XRP or RLUSD and how should they record it and there's a very narrow limit to how creative you can be in accounting. Right now the market uh is represented only by us retail and a handful of small ETFs. That's not a market. But after clarity that changes after clarity mo starts the mother of all bubbles which will probably peak when all the wars are over and cheap money floods the market. That's why I always say volatility formation is what matters most right now because the big guys select where to put their money based on volatility. The market builds the price and the liquidity through a bubble. What we've discussed in foundations 2, liquidity means that you have someone to sell to. The more liquidity in XRP, the more adoption of XRP because you cannot risk buying XRP with your client's money then not have someone to sell to on the other side to finalize the transfer. The more adoption XRP has, the more utility it has. And that feeds back on the volatility because traders who know utility is increasing are willing to pay more for entry because now they know for sure they will make a profit. Which means higher price, higher utility, higher liquidity. Repeat. While we're interested in price because this is what we're all here for, liquidity is the holy grail. and liquidity brings us to the second part of your question. Why would anyone use XRP? This part has also two parts of its own. The first part is why would anyone use XRP for payments and create liquidity to begin with. This question is worth a very detailed analysis as we have done in foundations one, foundations 3 and I believe fundamental 7. But the quick answer is that because they want to and because there is no alternative. The XRPPL and XRP are meant primarily for the handful of systemic banks. Those are Ripple's customers. This is who they cater to.

[00:14:52]XRP and the XRPL are not meant primarily for the TTCC, not meant for Black Rockck. Those are counterparties to Ripple customers.

[00:15:02]And as rich and diverse the crypto landscape may seem to be, go figure. The TTCC and Black Rockck have to build themselves because there is no one who builds for them the way Ripple builds for systemic banks. No, the crypto landscape is not rich and diverse. It is a bunch of platforms ran by foundations on which companies like Black Rockck are supposed to build themselves which they don't want to do but there is no no one to build for them. Think about transitioning from paper to computers.

[00:15:35]Did the banks and the DTCC and Black Rockck build their own computers and their own operating systems? No, they didn't because they do finance, not computers. Now, the XRPL is the only ledger out there that offers all the capabilities systemic banks need to tokenize their business. The other ledgers don't offer at all some capabilities or they integrate third-party services that they just can't deliver because those require really deep financial expertise and experience. And not only they do not offer all the capabilities, they don't offer any products to make use of the capabilities they are offering. Ripple's package is not only a full stack solution for investment banks to tokenize their business. It is the only solution available to them. If they want to use something else, they have to build it themselves. And none of them does any building because again their business and competence is finance, not blockchain.

[00:16:37]At the core of Ripple's offer is XRP.

[00:16:40]XRP is not something the banks need to tokenize their business, but something they want really, really, really, really badly because it allows them not only to save a lot of money and a lot of time, but actually allows them to make a lot more money on their money. We've discussed all that in Foundations One.

[00:17:01]Why would you hold 10 to 12 trillion dollars in nostrovostro in all kinds of currencies with hedging all over the world with administration all over the world with all the complexity of a scared reserve system and make 10 12 billions on it? Why do all that when you can release the trillions and easily make 5% on it that is 50 billion a year and get rid of all that nostro complexity. So why use XRP in transfers?

[00:17:31]Because they badly want to make more money in simpler ways. Because now they can and because XRP is the only offer on the table. The thing about systemic banks or reporting dealers as the BIS calls them is that they are dealing currency between themselves in about half of the foreign exchange operations and they are one leg in about 46% of the other half of foreign exchange operations. So in total Ripple's customers are involved in about 96% of the foreign exchange operations. It should be obvious to everyone that whatever they choose as a bridge asset that will be the default bridge asset of the world. The only thing that works as proven by the monogram proof of concept and the only thing on their table is XRP.

[00:18:22]This is why they will use XRP for transfers as the bridge asset. The other part of the question is why would they hold XRP? Buying and selling XRP for transfers will give it a liquidity the likes of which the world had never seen before. A lot more liquidity than the US treasuries, the most liquid asset on the planet right now, as we've seen in fundamental 7. So when you have an asset this liquid, when you have an asset that has a buyer at any time of day or night, you want to sell at whatever the price is, then why in the world would you post treasuries as collateral when you can post XRP and trade the treasuries instead when you can easily make another 5% on it, another 150 billion instead of the.1% you're making right now. Systemic banks don't only control foreign exchange, they also control trading.

[00:19:20]When it comes to derivatives trading, they are the trading counterparty of the world. Just like they are involved in 96% of foreign exchange, they are basically involved in 100% of derivatives trading. And you've guessed it, whatever they you choose as collateral is the default collateral of the world. What do they choose as collateral then? the most liquid asset out there. What is the most liquid asset out there? The bridge asset. As the default bridge, it is bridging the liquidity between currencies. What is the only offer on the table for a bridge asset for payments? XRP full circle. And notice that nowhere in that loop did I say Ripple decides. The market discovers the price. The market provides the liquidity. The market selects the collateral. That's what make this work and that's why they will hold XRP to use as collateral.

[00:20:19]Sure, we bought we're holding and we're hoping that there's mass adoption and everyone will buy XRP. But why would they buy a ton of XRP, drive the price up, have the supply be even lower, and then hope that a huge swath of the financial sector in a bunch of the countries, banks, governments, wealthy people are going to be utilizing the XRP ledger to make these. There's no hope.

[00:20:45]There is no buying and holding, hoping.

[00:20:49]It's all about liquidity. When an asset is liquid, everyone wants it.

[00:20:54]crossborder transactions. Also, it begs the question of if we do not have enough XRP. Maybe it is worth a lot and then there's and then there's a downturn in price, what happens? Does it break the whole system? Theoretically, if one XRP is worth $10,000, there's probably enough XRP to go ahead and take a healthy amount of market share away from Swift and still be a viable feasible solution for crossborder payments. But then what happens if there's a crypto winter or there's some the automatic balancing orders on collateral positions alone represent around $17 trillion a day in stabilizing demand. There is no asset in history that ever had the stabilizing demand XRP has as collateral. Prices can still fall with the global economy, but for an XRP specific crash, you'd need the global financial system to break first.

[00:22:01]Better investment or just people really need money and there's a huge sell-off in the price of XRP, the market cap is going to drastically drop. And let's say you go from XRP being worth $2,500 to now just being worth $100. because of the amount of usage that's happening that is actually going to break the entire system and then pro >> it can't break the entire system. The usage creates liquidity liquidity creates demand probably no one's ever going to use it again. So what I'm trying to say is can someone explain to me how demand and supply would actually work in the favor of the price of XRP even among mass adoption.

[00:22:47]I think I did just that. I can add that crypto winters can only exist because there is no real crypto market.

[00:22:57]After clarity, there are no more crypto winters because the market will be the global economy tokenized. The market, the crypto market rises and falls with everything else, but it doesn't collapse in in isolation the way it does now when it's just us and a few ETFs chasing each other.

[00:23:20]Aside from the fact that the community is strong, they believe in it, they're going to keep scooping it up, banks do not necessarily need to hold XRP. And also, let's remember, Ripple is introducing other options such as RLUSD where you're going to have other options for RLUSD is not a competing product. it is another rail into and out of XRP for that ondemand liquidity and XRP will not be the main player there. This then begs the question, are we just investing in XRP to fund these other projects that Ripple is working on and then Ripple is going to line their pockets by having these other solutions be successful that really don't have a lot to do with XRP aside? No, we're not. All these other projects that Ripple is working on are not actually other projects that Ripple is working on. They are professional services systemic banks need to tokenize their business. Treasury services, brokerage, custody and Ripple bundles all of them. That is the product suite Ripple offers to systemic banks for them to tokenize their business. This is what systemic banks need and the entire suit leads to what they want XRP. There is gas and there is XRP required to open a wallet, but those are for security reasons and they will go down as much as possible in the future because it is really a pity to burn all that XRP from the fact that you need a little bit of XRP because it's the gas on the XRP ledger, but that's not really what's going to make us all rich. And so I want to understand what happens if the XRP ledger is starting to get adopted on a mass scale. How exactly is XRP going to be able to sustain that?

[00:25:26]If the XRPL is adopted on a massive scale, as you said, what you just described is an asset with similar liquidity to US treasuries and different risk drivers than US treasuries.

[00:25:40]Why do you think all the institutions on the planet load up on US treasuries?

[00:25:46]Because they are nice, fine paper, and bright colors? No, they load up on treasuries because the treasuries are the most liquid asset on the planet and because they know what drives the risks of US treasuries. They use it as collateral and reserves because they can instantly sell when they need to. That's why they loaded up on it. Now, what do you think happens when they realize there's another asset out there with similar liquidity and different risk drivers? Risk drivers they also know very well. Yes, that's exactly what's going to happen. When your trading books are exposed to interest rate risks, what do you want to hedge with? Do you what do you want to use as collateral? an asset exposed to the same rate risks.

[00:26:42]No, that's exactly what you don't want to do. But so far, you couldn't really walk around it, but now you can with XRP or was it never meant to? Is the team at Ripple actually smart enough and they know all this? Obviously, I'm not the first one to point this out. And so, they are creating >> There is actually nothing to point out here.

[00:27:08]other solutions like RLUSD. Also, what's to stop the XRP ledger from being forked and then having an entirely different project?

[00:27:18]There's nothing to stop the XRP ledger from being forked. The source code is public. The Stellar network is a fork of the XRPL. So, not only anyone can fork it. Jade Maleb actually did it. But ledgers don't do anything. It is people who do things. When the SEC sued, Ripple exited the moneygram proof of concept, which is not bad. Ripple made a slam dunk case out of that proof of concept and Ripple doesn't want to compete against its own customers. Right now, MoneyGram is using Stellar because it is compat compatible with their Ripple tools as Stellar is the fork of the XRPL.

[00:27:59]But Moneygram is not buying and selling XLM or using any other token as a bridge asset the way it did with XRP. Why?

[00:28:08]Because Stellar and others are platforms. They enable third parties to develop on top of it. They do not offer professional services to professional customers. A foundation can code a token, but it is simply beyond its capabilities to make the token a bridge asset. Only Ripple can do that. There's not a single entity that even claims it has the muscle to create a bridge asset, an alternative to XRP. Right now, Moneygram uses USDC and MGUSD to instantly register claims on dollars and pesos. The claims are still settled by a clearing house with the usual processes with real dollars and real pesos.

[00:28:53]Moneygram does not use a bridge asset to help settle claims instantly because it can't. This is the difference between XRP and everything else in crypto. XRP is the only one that can and it can only do that as part of Ripple's ecosystem.

[00:29:14]Can't you even integrate other types of stable coins and other types of bridge currencies and utilize them on the XRP ledger? So, it all begs the question of is too much success actually detrimental.

[00:29:29]Of course, you can integrate all kinds of stable coins and all kinds of things.

[00:29:34]And the more the better for XRP and hurtful to the price of XRP, which is what I care about. I'm not a giant financial institution. I'm not a bank.

[00:29:46]I'm not a government. I don't really care about utilizing XRP ledger to send billions of dollars to some other country so they could fight a foreign war. This is not what I'm interested in.

[00:29:58]I'm an investor in XRP and I want to make sure that it makes sense to hold past this crypto bull cycle where definitely I you should absolutely hold XRP and you should absolutely buy XRP regularly at whatever the price is. Can you spare $25 a week from your videos?

[00:30:17]If yes, then make it a habit that every Sunday you buy $25 worth of XRP regardless of the price because that $25 are $25 worth of volatility. This way you get to your XRP target price sooner.

[00:30:35]This is what XRP holders in Korea do and this is what we should all do. Speaking about Korea, when I first launched the channel in February or March or whatever, it landed on a different audience than I had in mind, and thousands of people were bouncing off in the first seconds of every video. So, I had to delete everything and start over to be able to steer the algorithm my way. Between the people bouncing off in their thousands, there was my very first genuinely interested subscriber, Apawuri from Korea. Hawi, shout out to you. I hope you are still subscribed and enjoying my videos. You and the rest of XRP holders from Korea are flipping Bitcoin regularly on exchanges. That's what we should all do. And shout out to every single one of my 1,83 subscribers. Let's pull together and let's keep XRP's volatility up. There is no additional cost to us if we just stop wasting $5 a month on Patreon and buy XRP instead.

[00:31:41]>> I'm an investor in XRP and I want to make sure that it makes sense to hold past this crypto bull cycle where definitely I do feel that XRP will break out. I put out my official prediction video. You can watch that. But I want to understand is it something I should hold on to for the long term because liquidity must absolutely meet usage.

[00:32:03]And there simpity is usage. As people or institutions use XRP, XRP becomes liquidly not enough XRP at this market cap. And even if XRP was worth $10, even if it was worth $50, it's still not enough XRP to even slightly compete with the amount of dollars that are being transacted on Swift and do so.

[00:32:36]>> There is not a single dollar transacted on Swift. Swift messages claims >> without completely breaking the system and also you have to rely on the market cap remaining high. Take a look.

[00:32:53]Forget that concept market cap. Delete it from your memory.

[00:32:59]>> At the charts of all cryptos, they go like this and then they drop down and then they go like this and then they drop down. So even if XRP's price gets to a certain point and it is a viable solution, what happens when it drops?

[00:33:13]Does it just This is only possible because there is no real market. It is just us, retail, and a handful of small ETFs chasing each other. That's not a market. For a market, we need to have the Clarity Act passed into law.

[00:33:31]Just break the system. Does Ripple say, "Oh, sorry guys. We're going to put out RLUSDA and RLUSDB and RLUSDC. We're also going to introduce XRP plus and XRP++ to go.

[00:33:46]>> I don't know when where that came from.

[00:33:49]>> Go ahead and give other options so that it could actually be sustainable. I want to know what the heck I'm investing in for the long term. And so, I'm asking these questions. I think it's healthy to ask these questions because I think that this is food for thought and we should, >> you know, in the 1600s for the first time the average Joe could sell something he didn't actually have.

[00:34:15]That created capitalism.

[00:34:18]Then in the 1700s, for the first time, the big companies could hold public debt. that created central banking and the financial system as we know it. In the 1900s, for the first time, the average Joe got to buy equity in those big companies, creating the markets we use today. Then in the 2000s, for the first time, the big companies got to sell something that does not exist, the derivatives market. And now it's Average Joe's turn again. For the first time, we get to be a part of that. You, my friend, are holding what is going to be top tier collateral. And when all is said and done, you'll be a part of the first generation of Joe's who get to make money out of it in the repo market, just like financial institutions do today with treasuries. That's DeFi for you. Democratized finance, not smart contracts on Ethereum. See you next