According to U.Today, Panos Mekras, the co-founder of Anodos Finance, recently used a social media platform to clarify common misunderstandings about the Automated Market Maker (AMM) feature of the XRP Ledger. Mekras emphasized that providing liquidity should be viewed as an independent income strategy, implying that users are not required to contribute the XRP tokens they plan to retain. He stated that as a liquidity provider, the focus should be on income and fees generated by trading activity, regardless of whether the end result is more on one side and less on the other. The total profit is what counts.
Mekras also discussed the concept of impermanent loss, a risky situation that can occur due to price volatility leading to a temporary decrease in value. He suggested that in certain circumstances, this could actually be beneficial to users. He further noted that not all liquidity pools are the same, and they carry varying degrees of risk. For instance, providing liquidity into a stablecoin pool with pairs like USD/EUR carries minimal risk. However, pools containing two volatile cryptocurrency tokens with a high correlation, such as XRP and XLM, can be quite risky.
Mekras also clarified that there is no staking or earning with XRP tokens. Users can only contribute their assets to AMM, allowing others to trade them, and in return, they can earn a fee. The XRP Ledger's AMM feature was launched earlier this year, but its introduction has been plagued by technical problems.