The XRP Ledger (XRPL) will soon support a native AMM, and the CTO of Ripple says this is the most exciting feature coming to XRPL in the past ten years.
David Schwartz, the CTO of Ripple, recently called attention to an article detailing the unique features that will come with the native Automated Market Maker (AMM) functionality on the XRP Ledger. Schwartz revealed that the AMM functionality is his top pick for the most exciting feature coming to XRPL in the past ten years.
I'm more personally excited about this feature than any other proposed XRPL feature in the past ten years. https://t.co/FAClvsUEQe
— David "JoelKatz" Schwartz (@JoelKatz) April 25, 2023
Ripple introduced the native AMM functionality in July 2022. The feature went live on the devnet in November of that year to enable developers to test its functionality. As the mainnet launch draws closer, Lachlan Todd, a DeFi researcher, sought to highlight its unique features in a recent article.
CLOB Functionality
Central Limit Order Book (CLOB) is a common method in traditional finance, where buyers and sellers place orders at specific prices, and trades are executed when prices match.
On the other hand, decentralized exchanges typically use AMM, where prices are determined by a formula based on the asset’s supply and demand in a liquidity pool. The XRPL has used CLOB so far but will now use a hybrid of CLOB and AMM to offer optimal pricing with low slippage.
Protocol-Native AMM on XRPL
DEXs that use AMM typically incentivize users to attract liquidity, but this method can be unsustainable. This will not be the case for the XRPL AMM, as the AMM is built on the network itself and has access to protocol-wide liquidity.
One benefit of this is that the AMM makes it easier to get liquidity, which means more people can trade cryptocurrencies on the XRPL. Moreover, it allows anyone to create a new pool of assets to trade.
No MEV or Front-Running
MEV or Miner Extractable Value is a way for miners to extract extra value by taking advantage of the order of transactions in a block. Front-running is one form of MEV, where a miner can see a profitable transaction in the mempool and execute it before the original transaction by paying higher gas fees. Bots often do this, and it can take away value from users.
However, the XRPL eliminates this through federated consensus, where only a group of validator nodes come to a consensus, and canonical transaction ordering, which orders transactions in a hard-to-predict way.
Though some argue that federated consensus is not decentralized, the XRPL still limits the number of validators per entity and enforces strict standards.
Single-Sided Liquidity Provision
Providing liquidity to a pool of assets typically requires equal amounts of each asset, which can be inconvenient if a user doss not have equal amounts of both. However, the new XRPL AMM allows you to provide liquidity with just one asset, which will automatically convert into the paired asset to create equal value in the pool.
Continuous Auctions
The continuous auctions feature maintains fair asset prices by allowing arbitrageurs to take advantage of diverging prices between XRPL and other exchanges. This helps to bring prices back in line and compensate liquidity providers who may lose out on potential profits due to price discrepancies.
Disclaimer: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic’s opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
-Advertisement-
