The XRP Ledger could soon receive an upgrade that will introduce a built-in automated market maker (AMM) trading platform into the ledger, allowing $XRP token holders to earn income on-chain. The proposal to introduce it has now been gaining support from validators.
According to Anados Finance founder Panos Mekras, 20 validators have already approved the highly-anticipated XLS-30d amendment. Data from XRP Ledger explorer XRPScan shows that since Mekras’ post another validator has approved the proposal, bringing the consensus to 60%. The proposal has a 28 vote threshold.
An AMM is a platform that allows for cryptocurrency trading in a permissionless way using liquidity pools, rather than traditional order books. Liquidity pools are shared pools of two or more tokens supplied by users that are used for trades. The prices of tokens within the pool are determined through the use of blockchain oracles.
One of the main advantages of AMMs is that they eliminate the need for intermediaries and order books, which reduces transaction costs and delays. AMMs also enable high liquidity and low slippage, as users can always trade with the pool regardless of the market conditions.
Investors who add tokens to liquidity pools receive a share of the fees collected from each trade, but the revenue comes with the risk of impermanent loss. Impermanent loss occurs when price fluctuations alter the ratio of the tokens within the pool, meaning token providers could be better off if they simply held the tokens in their wallets.
The loss is considered to be impermanent because the ratio of tokens can be restored, in which case the token provider would be gaining the fees collected over time. An AMM on the XRP Ledger would mean XRP token holders could earn fees from trades on the AMM.
An AMM on the XRP Ledger would also allow the chains users to convert to other assets seamlessly on-chain, while also significantly boosting the liquidity of XRP itself as liquidity providers earn yield through liquidity pools.
Featured image via Unsplash.