The risks of passive income with the $XRP AMM?
Here's why and how:
1 - Pool imbalance: An AMM maintains a balance between two assets in its pool. When asset prices change significantly, it can throw the pool out of balance. For example, if the price of one asset increases significantly relative to the other, the pool may consist largely of the asset that increased, creating an imbalance.
2 - The impact on Exchange Rates: The AMM adjusts the exchange rates according to the balance of the pool. When the pool becomes unbalanced due to price changes, exchange rates may become less favorable for liquidity providers. When they withdraw their assets, they might get less than they expected due to the imbalance.
3 - Currency risk: Liquidity providers are exposed to “currency risk” because they hold assets in the pool. If the price of an asset decreases after they deposit their assets, they will incur a loss when they withdraw their assets from the pool.
4 - Arbitrage by Traders: Traders can take advantage of pool imbalances by carrying out arbitrage operations. This can result in rapid movements of funds in the pool, impacting liquidity providers.
So is this really a problem? I think not #pasunconseilfinancier . Because if $XRP must be used for transactions by financial institutions, they cannot take the risk of leaving room for great volatility in the price of $XRP. The public clearly does not have the billions that will be injected by the institutions to guarantee liquidity so we will not be able to extract them either since the liquidity is blocked.
This is why a price will be set at $XRP, a bit like a stable coin but very, very expensive.
All you have to do is choose the second token of your pair (wink)!!
