AMMs Arrive on XRP Ledger?! Ripple CTO Addresses User Concerns

Published by

Qadir AK

January 27, 2024

Ripple’s Chief Technology Officer, David Schwartz, has recently provided crucial insights into the upcoming upgrade to the XRP Ledger, specifically regarding the integration of the automated market maker (AMM) protocol. In a noteworthy development, the amendment has gained substantial support, securing 28 out of 35 votes and achieving a commendable 62% consensus, setting the stage for a transformative shift.

Excited to know what it all means? Read on!

The Secrets of the AMM Protocol

To address concerns about potential XRP losses, Schwartz explained the distinctive strategy behind the AMM protocol. Liquidity providers receive tokens specific to the AMM, with the protocol designed to maintain stable and increasing token values, even in volatile market conditions.

Acknowledging potential drawbacks, Schwartz noted that while losses are theoretically minimized, users may not see as much profit during price surges as they would by holding the underlying assets. It’s crucial to understand that Automated Market Makers (AMMs) don’t initiate transactions but provide liquidity during user engagements in OfferCreate and Payment transactions.

Navigating Critical Challenges

On a different note, a user raised concerns about network issues and an unresolved online bug. Schwartz promptly addressed the bug, suggesting a dynamic self-tuning approach for improved efficiency. The primary focus of the amendment on AMMs promises to enhance decentralized exchanges, offering algorithmically priced assets and facilitating peer-to-peer token trading through smart contract-secured liquidity pools, ultimately reducing exchange fees as token reserves increase.

Don’t Celebrate Too Soon! Cautionary Note

Schwartz emphasized considering counterparty risk, especially with exposure to at least two assets, including stable ones like USD. While reassuring XRP holders about the protocol’s resilience against value losses, he highlighted potential risks associated with evolving market dynamics and unforeseeable issues in the AMM implementation or the XRP Ledger.

In the interim, the amendment, introducing the AMM feature to the XRP Ledger, is on the brink of achieving validator consensus. Yesterday’s consensus stood at 60%, with 21 “Yea” votes, and the latest update shows a solid 62% consensus, backed by 28 “Yea” votes.

Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.