The Ripple CTO recently asserted that the upcoming AMM on the XRP Ledger (XRPL) DEX would not substantially decrease XRP’s price volatility anytime soon.
The upcoming automated market maker (AMM) on the XRPL has remained the subject of discussion within the community. Market participants have made inquiries regarding the AMM’s potential impact on the XRPL and its native token, XRP.
One such inquiry relates to the possibility of the AMM contributing significantly to a reduction in XRP’s price volatility as a result of some trading strategies users could employ, including volatility harvesting.
Recall that the XRPL community recently delayed the implementation of the AMM feature, as some validators revoked their support when they discovered a mild bug that could affect its performance. The bug has been fixed, with the latest amendment currently boasting a 74% validator consensus.
Ripple CTO on Impact of the AMM
Amid the imminent launch of the feature, Ripple CTO David Schwartz recently responded to Uptownsaul, an XRP community figure, expressing his thoughts on the AMM’s potential to mitigate the price fluctuations of XRP, commonly influenced by market sentiment and external factors.
Schwartz clarified that the AMM feature could alter existing trading strategies used by market participants. However, he highlighted that it would also introduce new trading prospects, such as arbitraging against the native XRPL DEX and participating in the continuous auction.
I don't think it will very much. There might be some trading strategies employed by humans today that make less sense with AMMs. But in exchange, new strategies such as arbitraging against the DEX and bidding in the continuous auction are created. 1/2
— David "JoelKatz" Schwartz (@JoelKatz) February 25, 2024
He emphasized the emergence of volatility harvesting with the AMM. This strategy, which market participants could leverage with multiple AMM instances, capitalizes on price movements to generate profits.
David Schwartz confirmed that volatility harvesting could theoretically reduce the price fluctuations of an asset. However, he expressed skepticism that the AMM feature on the XRPL DEX would bring about a substantial decrease in XRP price volatility in the near future.
While volatility haversting does, at least in theory, reduce volatility, I don't think AMMs on the XRPL DEX will cause a meaningful decrease in XRP price volatility any time soon. DEX trading activity is a drop in the XRP trading ocean. 2/2
— David "JoelKatz" Schwartz (@JoelKatz) February 25, 2024
The Ripple CTO reasoned that the trading activity on the XRPL DEX is relatively minor compared to the overall XRP trading volume, dominated by centralized exchanges and other platforms. According to him, trading on the XRPL DEX is a “drop in the XRP trading ocean.”
XRP Sees Reduced Price Volatility
Schwartz’s remarks come at a time when some proponents have suggested that XRP was exhibiting features of a stablecoin. These enthusiasts have bemoaned the asset’s inability to record major price swings despite the broader market uptrend.
Notably, XRP currently changes hands at $0.5389, only up 1.24% over the past 30 days. In contrast, Bitcoin (BTC) has skyrocketed 22.76% within the same timeframe, while Ethereum (ETH) is up 36.91%. Investors have not received this underperformance well.
Some individuals have begun speculating that Ripple might be using trading strategies to keep XRP’s price stable, but these speculations remain unproven. The imminent implementation of the AMM has raised further concerns of a more substantial reduction in XRP price volatility.
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.
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