On 28th February, Weiss Ratings the famous US-based financial research company tweeted on Azimo, a money transfer service that will now use Ripple’s On-Demand Liquidity service to accelerate fund transfers in the Philipines. The tweet also gave an unpopular opinion which totally makes sense until you read it again.
Weiss Rating’s Tweet:
“Money transfer service #Azimo will use #Ripple’s #ODL service to speed up the fund transfer in Philippines. Why not use #stablecoins instead? #USDT is more liquid than #XRP. This would have been a novelty in 2015. Now there are better options than XRP for moving fiat around.”
Weiss pointed out some basic facts such as stablecoins being more liquid than XRP and how there are now better options than XRP for dealing in faster fiat transfers. This indicated how stablecoins can always be used over XRP which is pretty true, but the question is why does XRP have more adoption than stablecoins in terms of leveraging payment providers? And why do payment providers not select stablecoins such as USDT over XRP despite the liquidity.
Counterparty risk is the risk of one or more parties in a monetary transaction defaulting or failing to meet their obligations of the trade. Counterparty risk is especially relevant in markets where notional values can far exceed the size of the underlying securities such as cryptocurrency transactions.
Irrespective of the stability Stable coins get in, Stablecoins are not stable and cannot be due to counterparty risk. Plus Stablecoins like Tether [USDT] are supposed to be backed up by real fiat that needs to be held in a bank account. As history shows, USDT has had a record of not having a 100% reserve making it less credible.
Liquidity is the flexibility of buying/selling an asset without causing drastic changes to the price of the asset. When it comes to stablecoins, yes, the liquidity is the most as compared to any this is the first thought that anyone could think of after all stablecoins are backed by real fiat, isn’t it?
As Stablecoins are backed by fiat they fall into the categories of constrains imposed by regulations which are usually implied on fiat currencies. This compromises the efficiency of the conversion process making it less liquid than cryptocurrencies.
Infrastructure plays the most important role in accelerating fund transfers. The UI/UX and customer experience is vital. Ripple for that matter has transformed digital payment infrastructure. With RippleNet, xCurrent, and Xvia the ecosystem is built to meet the requirements of the targetted customers.
This type of infrastructure is missing in stablecoins. Although stablecoins such as USDT enable people to send, receive, store, exchange and accept cryptocurrency payments online it doesn’t accelerate the liquidity for multiple fiat currencies which XRP undoubtedly does.
Stablecoins are the next plateau in the evolution of digital currencies. These stable cryptocurrencies have the potential for the digital payment adoption breakthrough nevertheless, Ripple at this moment has more resources and infrastructure for cross-border payments than any other cryptocurrency.