What is on-demand liquidity (ODL)?

On-demand liquidity (ODL) is a payment settlement method that uses digital assets to move money between countries without pre-funded accounts. Instead of banks keeping money sitting in foreign accounts waiting to process payments, ODL converts the sending currency into a digital asset, transfers it across borders in seconds, then converts it into the receiving currency.

This approach was developed by Ripple Labs and uses XRP as the bridge currency between traditional currencies. Financial institutions access liquidity only when needed rather than tying up capital in accounts across multiple countries.

For payment service providers and banks handling cross-border transfers, ODL offers an alternative to traditional correspondent banking networks. It reduces the capital requirements and speeds up settlement times compared to keeping funds parked in destination markets.

How on-demand liquidity works

ODL processes cross-border payments through a series of quick currency exchanges using digital assets as the middle step.

When someone sends a payment from one country to another, the process works like this:

• Currency conversion: The sending bank or payment provider converts the local currency into a digital asset (typically XRP). This happens on a digital asset exchange in the origin country.
• Cross-border transfer: The digital asset moves across the blockchain network to the destination country. This transfer completes in seconds rather than days.
• Final conversion: An exchange in the receiving country converts the digital asset into local currency. The recipient gets funds in their local currency.
• Settlement: The receiving bank or payment provider delivers the converted funds to the beneficiary's account.

The entire process typically completes in under one minute. The digital asset serves only as a temporary bridge between the two currencies. Neither the sender nor receiver needs to hold or interact with the digital asset directly.

This contrasts with traditional cross-border payments using SWIFT or wire transfers, which move through multiple correspondent banks and can take several days to settle.

4 key problems ODL solves

Traditional cross-border payments require financial institutions to maintain pre-funded accounts called nostro and vostro accounts in different currencies across multiple countries. These accounts tie up significant capital that could be used elsewhere.

1. Capital inefficiency: Banks must keep money sitting idle in foreign accounts to ensure they can process customer payments. Global financial institutions have an estimated $27 trillion locked in these pre-funded accounts according to the Bank for International Settlements.
2. Slow settlement: Traditional international payments move through chains of correspondent banks. Each intermediary adds time and processing steps. Payments often take 3-5 days to complete.
3. High costs: Multiple intermediaries mean multiple fees. Traditional cross-border payments typically cost $10-$50 per transaction plus foreign exchange spreads according to industry research.
4. Limited corridors: Smaller banks cannot afford to maintain accounts in every market they want to serve. This limits which countries and currencies they can offer to customers.

ODL addresses these issues by eliminating the need for pre-funded accounts entirely. Liquidity appears on-demand when payments need processing rather than sitting idle waiting for transactions.

On-demand liquidity vs traditional payments

Traditional cross-border payments and ODL differ in how they access liquidity and settle transactions.

• Traditional approach: Banks maintain accounts with other banks in foreign countries. When a payment needs processing, they debit their pre-funded account at the correspondent bank in that country. This requires keeping money tied up across many accounts globally.
• ODL approach: Banks or payment providers access liquidity through digital asset markets only when payments occur. They convert currency to digital assets, transfer across borders, and convert back to local currency. No pre-funding required.
• Settlement speed: Traditional payments process through multiple banks over several days. ODL settles in under one minute by moving digital assets across blockchain networks.
• Cost structure: Traditional payments accumulate fees from each correspondent bank in the chain. ODL involves exchange fees when converting currencies to and from digital assets, but eliminates correspondent banking fees.
• Capital requirements: Traditional methods require substantial capital locked in foreign accounts. ODL frees this capital since institutions only access liquidity as needed.

The tradeoff involves exposure to digital asset price movements during the brief conversion period. However, because ODL completes transactions in seconds, this exposure window is very short.

ODL in payment infrastructure

Financial institutions implementing ODL integrate it into their payment processing systems to handle specific cross-border corridors.

Payment providers typically use ODL for corridors where they process high volumes of payments but don't want to maintain large pre-funded balances. Common use cases include remittance payments, business payments to suppliers, and marketplace payouts.

The implementation requires connections to digital asset exchanges in both the sending and receiving countries. These exchanges provide the liquidity pools for converting between traditional currencies and digital assets.

Financial institutions also need systems to manage foreign exchange risk during the brief period funds exist as digital assets. While this window is very short (seconds), proper risk management ensures predictable costs.

ODL works best in corridors with deep liquidity in the bridging digital asset. Markets with active trading between local currencies and the bridge asset enable faster settlement and tighter pricing.

Banks and payment providers often use ODL alongside traditional payment methods rather than replacing them entirely. They might route remittance payments through ODL while using SWIFT for large commercial transactions requiring different processing and documentation.

Regulatory considerations

ODL involves digital assets which face different regulations across countries. Financial institutions using ODL must hold appropriate licenses in each market where they operate.

Some jurisdictions require specific money transmission licenses for handling digital assets. Others regulate digital asset exchanges separately from traditional financial institutions. Compliance requirements vary significantly by country.

The brief exposure to digital assets during ODL transactions also raises questions about whether institutions need cryptocurrency licenses or can operate under existing payment licenses. Regulatory guidance continues evolving as more institutions adopt these methods.

Know Your Customer (KYC) and anti-money laundering requirements apply throughout the ODL process. Institutions must verify the source and destination of funds just as with traditional cross-border payments.

ODL adoption and use cases

Major use cases for liquidity on-demand include:

• Remittance corridors: Payment providers use ODL for high-volume corridors where workers send money home to families. Popular routes include transfers between the United States and Mexico, Japan and the Philippines, and European countries to Africa.
• Business payments: Companies paying international suppliers or contractors use ODL to reduce payment delays and access better exchange rates than traditional banking channels offer.
• Marketplace settlements: E-commerce platforms and gig economy marketplaces use ODL to pay sellers and workers across borders quickly.
• Treasury management: Multinational companies move funds between subsidiaries in different countries using ODL to reduce the capital tied up in foreign accounts.

Financial institutions in Asia-Pacific, Latin America, and the Middle East have been early adopters of ODL. These regions often have higher traditional payment costs and longer settlement times, making the benefits of instant settlement more compelling.

On-demand liquidity statistics for 2026

ODL adoption has grown significantly as financial institutions seek alternatives to traditional correspondent banking:

• $15 billion in cross-border payments processed through ODL in 2024 according to CryptoSlate reporting
• 32% year-over-year growth in ODL transaction volumes per Yahoo Finance analysis
• 40% of RippleNet partners actively use ODL for liquidity rather than just messaging according to CoinLaw statistics
• 65% reduction in pre-funding requirements for institutional corridors per CoinLaw research
• 80% coverage of major global remittance corridors through ODL services according to CoinLaw
• 56% of ODL volume originates from Asia-Pacific region per multiple industry sources
• 70+ corridor pairs now served by ODL infrastructure according to CoinLaw
• Under 1 minute settlement times for most ODL transactions at scale per CoinLaw
• 40-60% cost reduction compared to traditional payment methods according to MEXC industry research
• 300+ financial institutions using RippleNet infrastructure globally per multiple industry sources
• 130% increase in ODL transactions from 2020 to 2021 according to Ripple reporting via MEXC

‍