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1/ Discussing the velocity of #XRP
In a previous thread, I discussed the difference between a Medium of Exchange (MoE)and a Store of Value(SoV), and how they affect the potential value of an asset.
Today, we look at a third aspect, velocity. https://twitter.com/bredgarlichouse/status/1238008968527691778
In a previous thread, I discussed the difference between a Medium of Exchange (MoE)and a Store of Value(SoV), and how they affect the potential value of an asset.
Today, we look at a third aspect, velocity. https://twitter.com/bredgarlichouse/status/1238008968527691778
2/ What is the velocity of an asset? It’s the rate at which a unit of an asset changes hands. As a rule,MoEs have extremely high velocity. SoVs have low velocity.This means that people exchange a high velocity asset ASAP for goods & services while hold on to a low velocity asset.
3/ Let’s look at #XRP. It was designed from the ground up as a high velocity asset, to act as a bridge between two assets. #ODL is a use case that was designed to leverage on this property of XRP, not hedge against it.
4/ This puts XRP investors in a challenging position. If every XRP was priced at 1$, the total worth of the all XRP would be 100b$ (rounded ), but the total amount worth of the ecosystem would be several times that (Because each xrp can change hands within seconds)
5/ ODL is a great use case, but the same thing that makes ODL possible (High velocity),makes it difficult for XRP to appreciate in value from ODL.
Think money:Money has high velocity,which also means that the purchasing power of money doesn’t appreciate,unless it becomes scarce
Think money:Money has high velocity,which also means that the purchasing power of money doesn’t appreciate,unless it becomes scarce
6/ IE severe deflation.
So we come to the challenge: How to ensure XRP is liquid enough to function as an MoE & facilitate ODL, while also ensuring that investors have a reason to hold it (which stabilizes/appreciates the value )?
So we come to the challenge: How to ensure XRP is liquid enough to function as an MoE & facilitate ODL, while also ensuring that investors have a reason to hold it (which stabilizes/appreciates the value )?
7/ it’s a tightrope. Introduce severe deflation and the value appreciates, but it becomes useless as an MoE. Keep the velocity unchecked and the asset becomes extremely unattractive to long term investors and likely will never appreciate in value.
8/ The key lies in controlled deflation. This is something gen 3 projects such as #Tezos and #VeChain do well with distributed staking. The #XRPL however, has no such provision natively, which means that additional instruments need to be built on top of it.
9/ and this I believe, is the reason for the #Stablecoin proposal that @JoelKatz made a few months ago. The best way to introduce controlled deflation to XRP is to build #DeFi financial instruments that collateralizes XRP in some form and removes it from the circulating supply
10/ This is the best of both worlds; the XRP that’s still in circulation retains its high velocity and keeps the ODL use case going. The DeFi use cases will gradually raise the value of the asset. And the higher the value of the asset, the less of it is needed for ODL, owing to
11/ its high velocity. I believe this is the path @Ripple is taking; ie first getting the ODL use case running at full speed and then building the DeFi use cases to introduce controlled inflation (The recent acquisitions point to this direction )
12/ What does this mean to the average XRP investor?
IMO, apart from a speculative market wide bullrun, it is highly unlikely that #ODL will raise the value of XRP, not until the DeFi use cases come to be. I personally am prepared for the long haul.
DYOR
IMO, apart from a speculative market wide bullrun, it is highly unlikely that #ODL will raise the value of XRP, not until the DeFi use cases come to be. I personally am prepared for the long haul.
DYOR
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