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Bridge Currency

Sovereign Assets • Layer 1s • Payment Networks

intermediary exchange asset

A bridge currency is a digital or fiat currency used to facilitate exchanges between two other currencies, especially in international or cross-network transactions. It acts as an intermediary to improve liquidity and reduce conversion costs. In the crypto world, XRP is a well-known example of a bridge currency used to connect different fiat currencies and blockchain networks.

Use Case: A business in Japan needs to send payment to a supplier in Brazil. Instead of converting JPY directly to BRL (which may have limited liquidity and high fees), they use XRP as a bridge currency—converting JPY to XRP instantly, then XRP to BRL, completing the entire transaction in seconds at minimal cost.

Key Concepts:

  • $XRP — The most prominent bridge currency in blockchain-based payment systems
  • Cross-Border Payments — International transactions that benefit from bridge currency efficiency
  • Liquidity Optimization — Bridge currencies solve liquidity problems between less-common currency pairs
  • Settlement Finality — Fast confirmation of transactions using bridge currencies

Summary: Bridge currencies solve the inefficiency of direct currency pair conversions by providing a liquid intermediary asset. In blockchain payments, bridge currencies like XRP enable near-instant, low-cost transfers between any two fiat currencies, eliminating the need for pre-funded accounts and reducing reliance on traditional correspondent banking networks.

Feature Direct Currency Conversion Bridge Currency Model
Liquidity Limited for exotic pairs High liquidity through single bridge asset
Transaction Cost High spreads and fees Low fees via optimized path
Settlement Speed Days (via correspondent banks) Seconds (via blockchain)
Capital Requirements Pre-funded nostro accounts On-demand liquidity
Example JPY → BRL (low liquidity) JPY → XRP → BRL (high liquidity)

 
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