Ripple announced yesterday that it has implemented the long-awaited Automated Market Maker (AMM) feature in a devnet. Earlier this year, the RippleX team proposed the technical specification for XLS-30d.
This is a protocol-native AMM integrated with the order book-based DEX on the XRP ledger. Developers can now integrate their applications directly into the AMM to enable powerful applications for their users.
XLS-30d will exist as the core element of the ledger, using a set of fixed functions that allow application developers to create interfaces for end dealers and liquidity providers (LPs).
The “Secret Sauce”
In addition, XLS-30d includes a novel auction mechanism that incentivizes arbitrageurs while reducing the impact of volatile losses on LPs.
Ripple CTO David Schwartz emphasized in June that the XRP ledger has built-in decentralized exchanges, including all the features like peer-to-peer lending, sophisticated multi-hop payment features, and so on.
With the AMM, the XRPL will be better than the competition due to a “secret sauce,” he said:
And that leaves the XRP Ledger uniquely positioned to skip other DEXes, […].
Perhaps its most unique feature is that those providing liquidity to automated market makers are able to take a large portion of the profits that would normally go to arbitrageurs. I can’t really talk about the secret sauce yet.
Ripple targets DeFi expansion
AMMs enable decentralized trading without traditional order books with buy and sell offers. Trading occurs automatically using pools of available tokens.
The users supply the liquidity pools with tokens and earn a small fee in return. However, arbitragers are a problem.
The XLS-30d discussion states, “They wait until the profit from the arbitrage transaction (and hence the pool’s expected loss) exceeds the trading fees” while competing against others trying to do the same.
Ripple proposes a unique mechanism whereby the AMM entity continuously auctions off trading benefits, charges for them, and passes those profits on to liquidity providers.
The idea is that XRPL will make AMM arbitrage faster and less risky while increasing profits for liquidity providers and overall liquidity in the system; “A win for everyone.”
The upgrade has the potential to bring more liquidity to the XRP ecosystem and can also be a huge enabler for On Demand Liquidity (ODL) expansion under certain circumstances.
After extensive testing and community feedback, RippleX plans to propose a change to add XLS-30d to the XRPL mainnet. Like any upgrade, XLS-30d then has to clear the hurdle of 80% approval from all validators on the XRP Ledger.
At press time, XRP is trading at $0.4017 and facing a major resistance at $0.4189.
XRP price 4 hour chart. Source: TradingView
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