A blockchain sleuth recently aimed to uncover the reason behind the Ripple support for the proposed Automated Market Maker (AMM) feature on the XRP Ledger (XRPL).
The AMM, which is currently under voting, would allow anyone to act as a liquidity provider and earn rewards for any trading pair on the blockchain network. This is beneficial to both the XRPL and market participants, as it helps bolster liquidity as well.
The AMM is one of the most anticipated features on the XRPL, as it would enable more liquidity, diversity, and innovation on the network. However, the voting process has been delayed by the lack of consensus among validators.
Reason Behind Ripple Support?
Some validators have drummed support for the feature despite the reservations from others. Ripple is one of the validators pushing for the AMM.
Recently, Mr. Huber, an on-chain sleuth, revealed that he discovered the reason behind Ripple’s support from a court document in the Ripple vs. Zakinov case.
The Ripple vs. Zakinov case is a class action lawsuit filed by some XRP holders who claim that Ripple violated securities laws by selling unregistered XRP. The plaintiffs seek to represent all XRP holders who held XRP at a loss.
The document presented by Mr. Huber, marked as “highly confidential” in 2021, showed that Ripple’s On-Demand Liquidity (ODL) service (now Ripple Payments), which uses XRP to facilitate cross-border payments, had a high cost of liquidity.
According to the document, Ripple had to pay fees to market makers who supplied liquidity for ODL transactions in markets where XRP was not liquid enough.
Mr. Huber explained that the AMM would solve this problem by enabling anyone to become a market maker and increase the liquidity of any trading pair without extra fees or friction. He called the AMM an “ingenious” solution that would lower the cost of ODL.
To corroborate his claims, he shared an excerpt of the document. The document stated that Ripple was trying to reduce the cost of liquidity, which accounted for 50% of the amount the firm spent on ODL.
It also stated that Ripple had to contract with market makers to facilitate ODL flows on exchanges where XRP liquidity was low.
Community Reactions
However, not everyone in the XRP community was convinced this plan could work. Panos Mekras, a crypto author and XRP proponent, stressed that the AMM alone was not enough to push this narrative for the improvement of ODL.
He pointed out that ODL still needed on/off-ramp protocols, which were not available in some countries. Also, most of them have high fees.
According to Mekras, the combination of ODL and AMM would only be feasible when these rails were available and accessible in all the ODL corridors.
Another community member asked Mr. Huber why the implementation of the AMM was taking so long, as some validators, including Ripple, had already voted in favor of it. As of press time, 17 validators have voted Yea, while 18 remain on Nay.
WrathofKahneman, a prominent XRP community figure, emphasized that some validators have not voted Yea because of concerns about the network strain that the AMM might cause. He said that they are awaiting more testing before implementing the feature.
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