How XRP Enables Faster, Low-Cost Cross Exchange Transfers
The recent financial market crumble has put crypto networks and their stakeholders to the test. As market activities increased, network congestion on Ethereum (ETH) and Bitcoin (BTC) reached unprecedented levels transaction fees for both assets exceeded 5x the norm. Moving these currencies in/out of exchanges became extremely difficult due to high fees and delayed processing.
We saw evidence that many users, especially Ethereum users, may be shifting to the digital asset XRP for exchange balance transfers and we’re not surprised. XRP was designed with value transfer on top of mind. It is reliable and affordable across a wide range of network loads.
Transaction fee and gas price are robust measures of Ethereum network health. Higher fees mean that users pay a premium to have their transactions included in blocks sooner, or at all. When ETH cost per transaction is higher, there are also more XRP cross-exchange transactions. This is especially true for days when ETH cost levels indicate severe network congestion.
The metric we used is median cost; we see a starker effect when comparing mean. On days when Ethereum fees skyrocketed, XRP cross-exchange transactions also increased significantly (Figure 1). Overall, higher Ethereum fees correlate with higher volumes in XRP (Pearson’s R = 0.7, statistically this is a meaningfully strong positive correlation).
For example, on March 12, 2020, Ethereum transaction fees rose over 400%. That same day, XRP cross-exchange transactions rose 226%. The chart above (Figure 2) shows how strong the relation is for each level of Ethereum transaction fee.
This relation is weaker, but still existent, when Ethereum fees are within a normal range (median to high) and strongest when Ethereum is at its lowest and highest. This means when Ethereum fees lower, XRP cross-exchange transactions decrease.
It’s also important to note that Ethereum and Bitcoin cross-exchange transactions slightly decreased with higher network congestion. The observed XRP transactions increase is likely a result of traders using XRP as an alternative rebalancing asset.
It’s possible that traders do not hold enough XRP for rebalancing or liquidation, leading to converting their Ethereum into XRP, to use as a bridge currency. (Note: XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently.)
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