The upcoming Automated Market Maker (AMM) functionality on the XRP Ledger (XRPL) has sparked discussions within the XRPL community. The XRP army and the broader XRPL community are asking questions about the AMM’s functions and the assets it will support.
Initial speculation suggested the AMM might exclusively work with XRP. This stemmed from the focus on XRP’s potential for generating passive income through liquidity pools. Additionally, Ripple’s previous emphasis on the AMM’s role in bolstering XRP’s utility fueled this belief.
Read Also: Ripple Executive Confirms XRPL’s AMM Ability To Brace XRP Utility: Details
However, Ripple CTO David Schwartz has clarified that the AMM will support a wider range of assets, not just XRP. Market participants will have the flexibility to create AMM pools featuring any two assets on the XRPL. This opens the door for a diverse pool of trading options for all assets supported by the XRPL.
AMMs can be created with any two assets supported by the XRP Ledger. I suspect AMMs where one of those assets is XRP will be the most popular, but that's just my expectation.
— David "JoelKatz" Schwartz (@JoelKatz) March 18, 2024
XRP’s Potential AMM Dominance
While the AMM offers support for various assets, Schwartz anticipates XRP to remain the dominant player within the pools. This dominance can be attributed to XRP’s established role as the top digital asset on the XRPL and for paying gas fees on the network.
Interestingly, some community members have even floated the possibility of Ripple injecting a portion of its escrowed XRP into the AMM to bolster liquidity. Schwartz, however, advises against this approach, citing potential selling pressure that could arise from such a move.
Panos Mekras, founder of Anodos Finance, has also suggested that Ripple injecting only XRP into the AMM would have a bearish impact on the asset’s price. The AMM’s launch is scheduled for March 22. After a brief delay, the proposal reached the minimum validator consensus on March 15.
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Read Also: Ripple CTO Outlines Three Reasons Not To Hold XRP in Automated Market Maker (AMM)
The AMM’s Potential for the Broader XRPL Ecosystem
The XRPL AMM’s arrival signifies a significant step towards a more decentralized and efficient trading environment within the XRPL ecosystem. By facilitating automated liquidity provision, the AMM eliminates the need for traditional order book management. This can attract new users and projects seeking a streamlined trading experience with minimal barriers to entry.
Furthermore, the AMM presents an opportunity for increased utility for other XRPL-based tokens. Projects can leverage the AMM to create liquidity pools for their native tokens, facilitating easier trading and potentially attracting new investors. This fosters a more interconnected and vibrant XRPL ecosystem.
The AMM is a highly anticipated addition to the XRPL ecosystem, and Schwartz has also clarified other aspects of the amendment, recently speaking on the AMM’s potential effect on XRP price volatility.
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