Here’s Most Underrated Part of the XRP Ecosystem

All Things XRP (@XRP_investing), a well-known figure in the XRP community, recently emphasized the overlooked role of automated market maker (AMM) liquidity pools within the XRP Ledger. According to the analyst, these pools absorb increasing amounts of XRP, effectively removing them from the circulating supply.

This observation brings attention to a critical factor in XRP’s evolving market structure. As more liquidity pools go live, the amount of XRP locked in them grows, gradually shrinking the available supply.

This shift comes as the XRP Ledger (XRPL) continues to evolve with DeFi capabilities, particularly since the launch of AMM features during an upgrade in 2024.

Supply Reduction via Liquidity Pools

The design of AMM pools on the XRP Ledger requires participants to commit XRP in exchange for yield. Once deposited, that XRP remains in the pool and cannot be used elsewhere unless withdrawn. The longer this XRP stays in AMMs, the less of it remains in active circulation. This is particularly relevant as many participants provide liquidity for extended periods to earn passive income.

While the digital asset’s total supply remains fixed at 100 billion tokens, only a portion is circulating due to Ripple’s large holdings of escrowed XRP. Liquidity pools now introduce a mechanism by which even circulating XRP becomes temporarily inaccessible.

This effectively functions as a supply reduction mechanism. As the tokenization of assets grows on the XRPL, more users are expected to provide liquidity across a range of asset pairs, which may further expand the number of tokens locked away.

Impact of the Increased Demand On XRP

With tokenization gaining traction across institutional and retail segments, demand for XRP’s underlying infrastructure may increase. If this growth coincides with a shrinking liquid supply due to liquidity pooling, the balance between supply and demand could shift. “When demand rises while supply falls… price has to move,” All Things XRP noted.

This scenario depends on the broader adoption of the AMM system and the continued growth of tokenized asset markets using the XRP Ledger. If both trends hold, the XRP locked in pools could play a more direct role in supporting upward price movement by limiting immediate sell pressure.

Before the launch, Ripple CTO David Schwartz stated that he was personally excited about the AMM upgrade, and the positive effects show that Ripple’s development team is making the best moves for the digital asset’s long-term future.

Disclaimer: This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses.

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