XRP: A Preferred Base Currency for Arbitrage Trading

This article was first published on Insights – Ripple
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Digital assets are often referred to as safe haven assets—assets that market participants turn to during turmoil in financial markets. Today, this label is being tested as COVID-19 impacts global financial markets.

Amidst the sudden market collapse on March 12, 2020—what many are calling “Black Thursday”—daily transaction fees skyrocketed to five times the normal amount on Ethereum and Bitcoin’s network, delaying settlements and increasing the price of exchange for currencies between exchanges. During this time, analysis shows that users began shifting to the digital asset XRP for exchange balance transfers. 

Source: Xpring. Median costs were plotted, but mean costs would show more extreme fluctuations and longer recovery periods in BTC and ETH cost per transaction.

XRP’s low transaction fees, reliability and speed make it ideal for sourcing liquidity in cross-border payments. These same attributes also enable market makers and traders to take advantage of arbitrage opportunities intra-exchange—even in times of market stress. Traders and market makers leverage XRP to quickly service margin calls and manage risk/collateral. 

To better capture price differences on digital asset exchanges, value needs to move as quickly as possible, often across the world. Because of its unique consensus validation architecture, XRP does this nearly instantly, providing market makers and traders with a high-speed vehicle to move their funds from exchange to exchange. XRP’s speed not only allows it to capture more price differences between exchanges, it also reduces the exposure to the various risks involved in those arbitrage trades.

Several of the over 130 exchanges where XRP is listed have noted this global payments use case and taken action. From North America to Asia, they have listed XRP as a base currency, to be paired with fiat currencies and other digital assets in trading. 

In a recent post, Bitrue CEO Curis Wang ...

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