Anodos Finance co-director Panos Mekras debunked some prevalent myths about the application of XRPL Automated Market Maker (AMM) this week. The posts in a series by Mekras on X aimed to dispel the uncertainty in the arena while explaining a practical approach to the XRPL AMM functioning. He made it clear that XRP liquidity will only be required if users wish to provide liquidity support. This occurs in the setting of the by-end of this year’s launch of the XRPL AMM patch, which has technical glitches.
Moreover, Mekras further separated the mechanism of liquidity provision and the token holdings. He encouraged users to consider the income accompanying liquidity provision as a long-term providing strategy. According to him, it is not the privilege but the taxes and trading revenues that matter more; hence, he needs to keep a tight withdrawal policy. This further indicates how current his insights are and how pertinent they are today in light of the uncertainties and difficulties repeatedly mentioned by the users.
Impermanent loss dynamics in XRPL AMM explained
Mekras also elaborated on the issue of assigning impermanent losses like this to the ones who provide liquidity and have liquid assets. This indicates the internal risk to AMM networks in the DeFi (Decentralized Finance) ecosystem is caused by the loss of funds. He indicated that the losses resulting from volatile market conditions can either have positive or negative consequences depending on the current market situation. Such volatility frequently makes assets devalue in the short run, and this devaluation is, to say the least, a losing signal.
I still see some confusion and misconceptions on XRPL's AMM. Let's clarify:1. You don't have to provide XRP.2. Providing liquidity should be seen as a separate income strategy and not add assets you intend to hold. As a liquidity provider, you care about income and fees earned…
— Panos 🔼{X} (@panosmek) April 27, 2024
Besides, the Anodos Finance co-founder argued that the XRP token is for transactions only, and there is no staking or earning of tokens in AMM. Instead, traders can pledge other assets to the AMM and take rewards that are earned during trading activity. Mekras cleared the operational mechanism of XRPL AMM pools, including differences in design and risk levels. Stability pool assets with stablecoin pairs like USD/EUR constitute almost no risk, but the high volatility of digital assets like XRP/XLM can bring in high risks.
XRPL AMM upgrade enhances stability and trust
The XRPL AMM recently added the most important upgrade, ‘fixAMMOverflowOffer’. This fixes an overflow issue of containers that was discovered after the launch of the latest update. Therefore, such an improvement addresses the steadiness and dependability issues of AMM. Being extremely detailed in their explanation and making the previous technical adjustment will undoubtedly increase users’ awareness of XRPL AMM.
Having these clarifications and modifications, XRPL AMM can move at a better and more organized level. The primary role of explaining the platform’s functionality and addressing of existing misconceptions falls on Mekras as the result of the monitored effect on the understanding and confidence of the users. In the meantime, the community will still be on tenterhooks, waiting for its replacement service to be launched, which allows it to take a leading position in the DeFi sector.
