Ripple CTO David Schwartz, AKA JoelKatz, Touts Ripple’s New, Exciting Network
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June 2, 2023 9:59 am
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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:
At the same time, the pool is both executing a trading strategy and charging a spread when it provides liquidity. This results in an increase in the size of the pools which also increases the amount each LP token can be exchanged for. 2/2
— David "JoelKatz" Schwartz (@JoelKatz) May 31, 2023
For those who want to understand an AMM's trading strategy and may find the math too complex to follow, here's a grossly oversimplified way to understand how the trading strategy works:
Say you have an asset that's volatile but no signifcant long-term trend. That is, its price…
— David "JoelKatz" Schwartz (@JoelKatz) June 1, 2023
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.
Hi @JoelKatz, SolidiFi team from the Netherlands here.
We would like to bring the #XRPL AMM to our platform and have some technical questions (and innovative ideas). See you there for a cup of coffee? https://t.co/ikKgdhVQAN
— SolidiFi ☀️ (@solidifiapp) May 26, 2023
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.”
With XLS-30, the XRPL DEX will adopt the best of these 2 worlds introducing a hybrid that will support both AMM pricing and order book pricing.
If you want to read more about how exactly it will work read this: https://t.co/UIOqMVjXBl
— Panos 🔺 {X} ☀️ (τ,τ) (@panosmek) May 5, 2023
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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