On March 22, the Ripple main chain was revised to add the AMM automatic market maker, and the community nodes voted to approve it. and successfully launched online. Ripple Labs will release the latest version of the wallet on the 23rd. It is expected that all Ripple users will be able to use the new version of the AMM automatic market maker function before the 30th.
Immediately afterwards, XRP on the market rose for a short period of time in response to this news. Old Ripple users who are familiar with AMM automated market makers quickly understood the significance of the addition of AMM to the Ripple chain revision. We are even more looking forward to the future development of Ripple Chain. Many new users don’t know what AMM is and what changes it will bring to the Ripple chain. Therefore, the blogger specially wrote this article to explain the confusion in an easy-to-understand manner to introduce to you what an AMM automatic market maker is and how it fits with the current Ripple chain applications.
First of all, if you are a user who has used the Ripple chain and has a certain understanding of it, you should know that XRP comes with an on-chain gateway trading system, which allows different cryptocurrencies to be freely traded and exchanged with XRP.
However, in order for users to achieve smooth, fast, and stable spread transactions in the network, someone needs to provide liquidity to the trading network. It's similar to brick-and-mortar. Someone places a buy order and a sell order at the same time in the transaction order. When a user places a buy order in the transaction order, the brick-and-mortar person will add a sell order to the transaction order again to maintain its own liquidity pool of cryptocurrency. The quantity remains unchanged. Frequent repeated operations not only earn interest differentials, but also provide partial liquidity for transactions. This is a type of market making.
This kind of liquidity pool established by individuals or specific organizations to provide liquidity to generate profits is a traditional centralized market making operation. There are certain requirements for the financial strength and operating technology of market makers, and centralized market makers pose certain uncontrollable risks to market stability.
In the world of blockchain, everyone is more accustomed to using decentralized algorithms to solve problems. In particular, the XRP chain itself is a decentralized trading network, so everyone decided that it would be better to leave this job to robots. Joining the AMM automatic market maker further strengthens its DEX (decentralized exchange) attributes, and adds a new DeFi section to the XRP chain, which can provide more stable and sufficiently deep liquidity for trading pairs.
For example, the XRPS/XRP trading pair. AMM directly calculates the exchange rates for mutual transactions between these two or more assets based on algorithms, realizing "instant transactions" without waiting for orders. In this process, anyone can provide liquidity to it, and everyone shares the benefits and transaction risks in proportion. Each AMM instance has a special account to hold its assets, and LP certificates are issued to users in proportion to their deposits. Users can vote on transaction fees based on the LP holding ratio, or return LP to retrieve assets.
This weakens the risk sharing that centralized market makers may have on the trading market and provides the market with sufficient organic liquidity to support active trading. It also ensures the stability of user transactions, and also provides every user who holds assets for a long time with a way to make money.
The above is the author's relatively superficial popular opinion, which is intended to help beginners clear their doubts. If you are interested but don't feel that you understand it very well, you can send a private message to the author with questions.
