Ripple CTO David Schwartz, AKA JoelKatz, Touts Ripple’s New, Exciting Network

By Vince • June 2, 2023 9:59 am • Comments

Ripple CTO David Schwartz has taken to Twitter to explain the features, inner workings, and benefits of the new XRPL AMM feature.

An automated market maker is an alternative to the order book method and acts as an automated broker that buys, sells, and balances assets so that stable exchanging and lending can occur.

David Schwartz explained how the new XRPL AMM works in this short tweet thread:

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Daily Coin explains the broader implications:

This innovative AMM has the potential to reshape decentralized exchanges, offering new opportunities for liquidity providers and introducing a fresh approach to trading strategies.

By providing a transparent and efficient platform that maximizes profit potential while adapting to market fluctuations, the XRPL AMM showcases the continuous evolution and advancement of the crypto market.

Other firms wishing to utilize the new XRPL AMM, such as SolidFi, also attempted to get Ripple CTO David Schwartz’s attention via Twitter.

Panos explained, “The XRPL introduced the first DEX, built in 2012, and Ιt uses on-chain order books, without smart contracts, aka Central Limit Order Book (CLOB) DEX.

Here are the main differences between AMMs and CLOBs. CLOBs are optimized for trading, while AMMs are optimized for liquidity.”

 

The XRPL AMM was discussed in greater depth on GitHub:

The XRPL decentralized exchange (DeX) currently provides liquidity exclusively by manual market making and order books.

This proposal adds non-custodial automated market maker (AMM) as a native feature to the XRPL DeX in a way that provides increased returns to those who provide liquidity for the AMM and minimizes the risk of losses due to volatility.

We propose a unique mechanism where the AMM instance continuously auctions off trading advantages to arbitrageurs, charging them and giving these earnings to its liquidity providers.

This allows liquidity providers to take a large share of the profits that would normally be taken by arbitrageurs.

The AMM instance charges a spread on the trades that change the ratio of tokens in the instance’s pools.

This trading fee is added to the AMM instance’s capital pool, thus adding to the liquidity providers’ returns.

The AMM instances also provide governance rights to the largest share holders of the AMM instance. This allows them to vote on the trading fee the instance charges.

XRPL’s AMM based DeX interacts with XRPL’s limit order book (LOB) based DeX so that users of AMM pools have access to all order flow and liquidity on LOB DeX, and vice versa.

The payment and order placement transactors automatically determine whether swapping within a liquidity pool or through the order book will provide the best price for the user and execute accordingly.

Pathfinding considers paths with both order books and AMMs in various combinations to improve the overall exchange rate.

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