Ripple update: True cost of transfer using xRapid
In order for an FI to transfer money using xRapid, they need to;
1. deposit local fiat at a local exchange from their bank accounts
2. purchase XRP on local exchange
3. send XRP to foreign exchange
4. sell XRP for foreign currency on foreign exchange
5. withdraw foreign fiat to destination bank account
xRapid makes all of this appear as an atomic process, however it is the cost of this entire process that worries me.
The fees involved in step 3 are negligable, however there are exchange commission charges in both 2 and 4, as well as having to pay the bid-ask spread-difference. Both of these later costs could substantially inflate the cost of xRapid, particularly initially when spreads are wide and there isn’t much float at the bid/ask prices.
Has anyone worked out more precise figures for these other costs using real data, as I am struggling to see how the touted 40% cost reduction in using xRapid of xCurrent materializes.
A very rough estimate using current data from a single exchange (Bitstamp, which isn’t even an xRapid exchange as far as I am aware), in order to purchase 300,000 XRP, the buyer would need to pay upto a price of €0.48695 per XRP. Similarly to sell this amount would involve a sale at mostly €0.47 per XRP. This means a spread of upto 0.01695 lost on the transfer, which equates to paying roughly €5000 in order to move roughly €145,000.
This does not even involve the exchange commission charges, nor does it look at bank costs involved in desposting/withdrawing to the exchanges (steps 1 and 5).
So it is clear that to transfer any substantial amount, the bid/ask spreads need to be incredibly tight, about 1000 times tighter than at present, and there needs to be large amount at the bid/ask price-points. And even then, this would still be a €5 charge for just the spread alone, which isn’t that much of a cost saving over wire transfers. In addition, the amount lost to spread increases the more money that is transfered, unlike typical wire charges which are flat fees.
This seems like the real chicken-egg problem that XRP faces – the necessary tight spreads and bids/asks won’t be there until it is cost effective to use xRapid, which won’t happen until the necessary spreads and bids/asks are there…
What am I missing?
Edit: As a comparison, the spread for trading $10,000 into £ on [lmax.com](https://lmax.com) is currently 0.000049, so $0.49 in spread cost!!
About Ripple (XRP)
Ripple connects banks, payment providers and digital asset exchanges via RippleNet to provide one frictionless experience to send money globally. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets. XRP is the fastest and most scalable digital asset today.
Author: moqtada2
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