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XRPL Welcomes AMM Functionality: Native Liquidity Management and Passive Income for XRP Holders

Daniel Urbánek
Daniel Urbánek
March 22 at 21:28
News, Engineering, XRPL

The XRPL takes a significant leap forward by introducing Automated Market Maker, following the XLS-30 amendment. XRPL will boost its trading efficiency and liquidity provision.

The XRP Ledger (XRPL) has implemented Automated Market Maker (AMM) functionality through the XLS-30 amendment, enhancing its decentralized finance (DeFi) capabilities. This update allows XRP holders to become liquidity providers, offering a new avenue for earning passive income. 

The amendment's approval was marked by strong support from the XRPL community, with a 97% consensus achieved among the decentralized Unique Node List (dUNL) validators, where 34 out of 35 voted in favor.

TL;DR:

  • Automated Market Maker (AMM) Functionality Added to XRPL: The XRP Ledger (XRPL) has introduced AMM functionality through the XLS-30d amendment.
  • The amendment received an 85.71% consensus, with 30 out of 35 decentralized Unique Node List (dUNL) validators voting in favor.
  • The AMM integration will allow for efficient liquidity provision and trading, enabling XRP holders to participate as liquidity providers and earn passive income.
  • Features such as a continuous auction mechanism and single-sided liquidity provision aim to mitigate impermanent loss and incentivize market stability.

The integration of AMM into the XRPL's existing decentralized exchange (DEX) is a technical step forward, making liquidity provision and trading more efficient. It enables a more dynamic interaction between users and the ecosystem, allowing for a proportional share in earnings and exchange risks for those who contribute liquidity. 

Additionally, the amendment introduces governance features, such as the ability for liquidity providers to vote on the AMM's trading fee​. The full integration of AMM functionality is expected to be live on the XRPL mainnet by 22nd March 2024.

Refresher: What's an Automated Market Maker (AMM)?

 Automated Market Makers (AMM) are a cornerstone of decentralized finance (DeFi), offering an alternative to traditional market-making mechanisms. Unlike conventional exchanges that rely on order books to match buyers and sellers, AMMs use smart contracts to create liquidity pools for each token pair, allowing users to trade directly with the pool. 

This system removes the need for an intermediary, making it possible for users to execute trades instantly, provided there's sufficient liquidity. AMMs are crucial for several reasons. They democratize the trading process, allowing anyone to become a liquidity provider (LP) by depositing assets into a pool.

Innovative Features of XRPL AMM

Technical features of the AMM functionality aim to address common DeFi challenges, such as impermanent loss. A continuous auction mechanism incentivizes arbitrageurs to maintain market stability, which benefits liquidity providers by allowing them to retain a larger portion of trading fee revenues. Moreover, the AMM supports single-sided liquidity provision, simplifying the process for users by allowing them to deposit a single token into a liquidity pool​.

Development and Adoption

The amendment's journey to adoption highlights the XRPL community's role in evaluating and supporting new features. Key figures and organizations within the community, including XRPL Labs and RippleX, have been instrumental in the testing and advocacy for the update. Their efforts ensure the ledger remains responsive to the needs and security of its users.

RippleX's involvement in developing and integrating AMM functionality underscores the technical groundwork necessary for such a feature. By actively supporting AMM through client libraries and explorers, RippleX facilitated a smoother transition to this new system, showcasing the potential of AMM to transform liquidity provision and trading on the XRPL.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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