Ripple is currently considering adding an AMM feature to its network
Ripple is currently considering adding an AMM feature to its network. According to a Github release, discussions are ongoing for the 0030 XLS-30d proposal that seeks to introduce Automated Market Maker (AMM) to the XRPL blockchain. This is believed to have enormous potential for the network.
Ripple Wants to Bring Enormous DeFi Potential to XRPL via Uniswap-Like AMM
Automated market makers (AMMs) enable crypto assets to be traded without permission and conventional order books. Trading occurs automatically using pools of available tokens referred to as liquidity pools.
At the moment, the XRPL decentralized exchange (DeX) provides liquidity only through manual market making and order books. The XLS-30d proposal seeks to introduce a noncustodial automated market maker (AMM) as a native feature to the XRPL DeX in a way that maximizes returns for those who supply liquidity for the AMM and reduces the risk of losses brought on by volatility.
1. First, a brief re-cap: Automated market makers (AMMs) allow digital assets to be traded without permission and without traditional orderbooks of buy & sell offers. Trading happens automatically using pools of available tokens called liquidity pools https://t.co/pXyou0YKJn
— WrathofKahneman (@WKahneman) July 3, 2022
Not all AMMs are the same, and varying techniques have different trade-offs. In comparison to Uniswap, Ripple considers geometric mean market makers (GM3) as a native XRPL feature. To generate liquidity automatically, GM3 algorithmically determines a fair exchange value that is stabilized via arbitrage.
On XRPL, this would provide liquidity pools between XRP and issued assets as well as between any two issued assets. The AMM DeX is kept in a steady state in relation to external markets in large part thanks to arbitrageurs.
For the first time, this reveals the planned “secret sauce”, a continuous auction mechanism that incentivizes arbitrageurs to burn liquidity tokens and arbitrager sooner, more accurately, and more frequently to increase the benefits to liquidity providers.
— 𝙳𝚊𝚟𝚒𝚍 𝚂𝚌𝚑𝚠𝚊𝚛𝚝𝚣 (@JoelKatz) July 1, 2022
Although AMMs have their own arbitrage risk and problems, Ripple CTO Joel Katz says the planned XRPL AMM would have a “secret sauce,” a continuous auction mechanism that encourages arbitrageurs to burn liquidity tokens more quickly and frequently to boost the benefits to liquidity providers.
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