How XRPL’s AMM Burns XRP Explained

The XRP Ledger (XRPL) recently introduced a significant update with the integration of Automated Market Maker (AMM) functionality. This addition serves a dual purpose: enhancing liquidity for XRPL assets and contributing to a potential deflationary effect for XRP.

Understanding AMM Functionality and its Impact on XRP

Panos Mekras, a prominent figure in the XRP community, highlighted the AMM feature’s potential influence on XRP’s overall supply. He says the creation of a new AMM pool on the XRPL incurs a burn of 2 XRP. This burn rate is significantly higher than the typical transaction fee on the XRPL, designed to deter spam activity.

Read Also: When XRP Holders Will Start Earning Passive Income Revealed 

The introduction of AMMs on the XRPL reflects the growing importance of Decentralized Finance (DeFi) within the cryptocurrency landscape. Unlike traditional order book exchanges, XRPL AMMs operate seamlessly alongside the existing decentralized exchange, offering users a comprehensive trading experience.

Furthermore, the AMM feature incorporates a fee auction system, allowing liquidity providers to compete for lower fees, incentivizing participation and market activity.

Deflationary Aspects of XRP

Responding to Mekras’s insights, Lee Harrow, another active XRP community member, raised a crucial point regarding the AMM feature’s impact on XRP’s total supply. XRP has a capped supply of 100 billion tokens, and with over 12 million already burned, the AMM feature adds another deflationary mechanism.

XRPL data confirms that over 12.3 million XRP have been burned since the ledger’s inception, demonstrating a steady decrease in total supply over time.

XRP’s inherent deflationary nature stems from its design. Every transaction on the XRPL network incurs a small fee, which is subsequently burned. This mechanism, originally intended to combat spam transactions, also contributes to potential value appreciation for XRP through scarcity.

Community Response and Future Implications

The introduction of the AMM feature has been met with positive reactions from the XRP community. Since its launch, over 193 AMMs have been established, signifying a surge in activity within the XRPL ecosystem.

Read Also: Ripple CTO Clarifies Potential Impact of AMM On XRP Price Volatility 

The XRP Ledger’s AMM Feature: Liquidity and Deflationary Measures

The growth of AMMs is expected to further enhance liquidity for XRP and other assets on the XRPL while contributing to a potential reduction in XRP’s total supply through burns associated with AMM creation.

In conclusion, the XRPL’s AMM feature represents a noteworthy development that addresses two key aspects: improved liquidity for XRPL assets and a potential deflationary effect on XRP. This update aligns with the evolving DeFi landscape and positions the XRPL for continued growth and adoption.

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