The new XRPL Automated Market Maker (AMM) network’s trading approach was announced by David Schwartz, CTO of Ripple and one of the project’s initial architects. This information was revealed in response to a contentious discussion among XRP users.
The XRPL AMM, which was unveiled earlier this year, has drawn interest for its distinctive profit-sharing and liquidity providing capabilities. The system’s complexities were further explained on Twitter by Schwartz, who also clarified that the trading approach used was a volatility harvesting strategy. By purchasing when prices are falling and selling when they are rising, it profits from price changes, thereby arbitraging price discrepancies over time.
He then highlighted that the AMM’s auction process offers “arbitrage slots” for the tokens of liquidity providers, which results in the tokens’ annihilation. The portion of the pool’s assets represented by current LP tokens rises as a result of this destruction. The pool also employs a trading strategy and assesses a spread while supplying liquidity, resulting in bigger pools and a higher token exchange value.
Schwartz also presented the results of simulations he had run on the trading method, showing that it worked well with erratic stock prices. But when confronted with persistent patterns, he observed, its performance suffers.
The creator has previously emphasised XRPL’s AMM’s distinctiveness, establishing it as a possible leader among other decentralised exchanges. According to him, one of its most distinguishing characteristics is that it permits liquidity providers to claim a sizable portion of earnings that would ordinarily be attributed to arbitrage.
