Banking Crisis Halts 4.8% of Tranglo’s XRP Transactions

Attorney Bill Morgan has revealed how the 2023 banking crisis disrupted Ripple’s On-Demand Liquidity (ODL) system, specifically impacting XRP transactions. The insights come from Currenc Group’s March 6 SEC filing, which detailed the financial risks and the impact of the banking crisis on Tranglo, a key Ripple partner in Southeast Asia.

Tranglo faced severe liquidity challenges following the collapses of Silicon Valley Bank, Signature Bank, and Silvergate Bank. These failures created a liquidity shortage for crypto markets, as many exchanges relied on these banks for cash flow. Two exchanges used by Tranglo, Independent Reserve and Coins.ph, struggled to convert XRP into local currencies quickly enough, leading to disruptions in XRP transactions.

The filing explains that the failure of major U.S. banks created a liquidity shortage for crypto markets. Many exchanges relied on these banks for cash flow. When they collapsed, liquidity dried up. This forced Tranglo to ask its ODL partners to pause XRP transactions. In response, nine out of eleven ODL partners switched to fiat pre-funding to keep operations running. This highlighted the risks of relying on crypto for quick cash, especially when traditional banking support is lost.

The filing also provides insight into ODL adoption in 2024. It reveals that only seven out of Tranglo’s ninety-three active customers used ODL in the first nine months of the year. These transactions made up 4.8% of Tranglo’s remittance revenue and 3.6% of total payment transactions. While ODL remains part of Tranglo’s business, its limited adoption suggests some partners are hesitant to adopt it after past disruptions. Most have chosen to stick with fiat pre-funding instead of returning to XRP-based settlements.

Morgan noted that the filing contains one of the most detailed breakdowns of Tranglo’s ODL system. Pages 82 to 85 explain how XRP facilitates cross-border transactions. A diagram in the prospectus shows the process, confirming that XRP remains integral to Tranglo’s operations. Ripple’s ODL eliminates the need for pre-funded accounts by using XRP as a bridge currency. The system enables faster settlements and lowers costs. However, the 2023 banking crisis revealed its potential weaknesses during liquidity shortages.

The disruptions in XRP transactions also had implications for businesses and individuals that rely on Ripple's ODL system for cross-border payments. The delays and failures in transactions could have led to financial losses and operational disruptions for these entities. It is unclear how long the disruptions will last, but it is expected that Ripple will take steps to mitigate the impact of future banking crises on its ODL system.

In conclusion, the 2023 banking crisis has highlighted the vulnerabilities of Ripple's ODL system and the need for alternative solutions that are less reliant on traditional banking infrastructure. While the system has been praised for its efficiency and cost-effectiveness, the recent events have shown that it is not immune to disruptions caused by external factors. It remains to be seen how Ripple will address these challenges and ensure the resilience of its ODL system in the face of future financial instability.