Ripple developers building for the XRP Ledger have launched testing for an XRPL native AMM.
RippleX disclosed that testing and development were now open for its proposed XRPL native AMM in a tweet yesterday.
— RippleX (@RippleXDev) November 29, 2022
“Today, the AMM Devnet is live and ready to use, and we invite developers to test the AMM, build innovative applications, and ask questions or provide feedback on Discord,” Aanchal Malhotra wrote on behalf of RippleX developers. “Developers can integrate their apps directly with the AMM to power interactions with tokens, trading interfaces, retail experiences and more while taking advantage of liquidity provision, swap and auction features.”
The AMM is a product of the XLS-30d proposal made by RippleX in July to integrate an AMM with the central limit order book (CLOB) backed on-chain decentralized exchange (DEX). In the latest blog post, RippleX reveals plans to propose an amendment to launch the AMM on the mainnet after sufficient testing and feedback.
For context, an AMM is a DEX protocol backed by a liquidity pool from users while pricing assets in the pool using mathematical formulas. Generally, these protocols allow users to exchange assets at cheaper rates while offering deep liquidity.
The prospect of an AMM is exciting for XRP holders as it provides XRP holders with a means of passive income. Notably, every XRP holder will be able to become a liquidity provider (LP), earning a yield generated by the AMM in exchange.
Why An XRPL AMM is Unique
It bears mentioning that an AMM on the XRPL promises unique benefits not seen elsewhere. For one, it allows developers to integrate the protocol without creating a smart contract, reducing the risk of vulnerability to exploits.
Additionally, while it allows arbitrage opportunities against the AMM, it charges arbitrageurs for this opportunity to reduce the impact of temporary financial losses. The AMM will collect these fees in liquidity provider tokens offered in exchange for providing liquidity to the AMM. These charges will represent a percentage of the profit obtained by arbitrageurs. The AMM will burn these fees, increasing the value of the tokens held by liquidity providers, as explained by Ripple CTO David Schwartz at XRPL Dev Summit 2022.
In addition, because of the cheap fees of the network and its high throughput, arbitrageurs are less likely to miss arbitrage opportunities because of high fees that prevent traders from making a substantial profit.
Another feature to note is the integration of the AMM with the CLOB DEX will improve the overall exchange rate and determine the cheaper option for individual transactions between the order book and the liquidity pool.
Furthermore, there is a reduced risk of front-running incentivized by the consensus model of other networks that prioritize transactions with higher fees.
Finally, the AMM promises to allow users to contribute with single-side liquidity instead of other AMMs that require LP to contribute an equal amount of the tokens the pool offers. Notably, the pool automatically converts on behalf of the LP to maintain its 1:1 ratio.
The XRPL native AMM promises to be a revolution in decentralized finance. Moreover, its launch promises to make the XRP an even stronger Ethereum competitor. The network already offers native NFT functionality, and developers are already working on an EVM-compatible sidechain.