Ripple has announced that it has implemented the long-awaited automated market maker (AMM) feature in a devnet yesterday. Earlier this year, the RippleX team proposed the technical specification for XLS-30d.
This is a protocol-native AMM that is integrated into the order book-based DEX on the XRP Ledger. Developers can now integrate their applications directly into the AMM to enable powerful applications for their users.
XLS-30d will exist as the core primitive of the ledger and will use a set of fixed features that allow application developers to create interfaces for end traders and liquidity providers (LPs).
The ‘Secret Sauce’
In addition, XLS-30d includes a novel auction mechanism that incentivizes arbitrageurs while reducing the impact of volatile losses for LPs.
Ripple CTO David Schwartz emphasized in June that the XRP Ledger has built-in decentralized exchanges, including all features such as peer-to-peer lending, sophisticated multi-hop payment functions, and so on.
With the AMM, the XRPL will better than the competition due to a “secret sauce”, he said:
And that leaves the XRP ledger uniquely positioned to leapfrog other DEXes, […].
Probably the most unique feature is that it allows those that provide liquidity for automated market makers to take a large share of the profits that would normally go to arbitrageurs. Can’t really talk about the secret sauce just yet.
Ripple Targets DeFi Expansion
AMMs enable decentralized trading without traditional order books with buy and sell offers. Trading takes place automatically using pools of available tokens.
Users supply the liquidity pools with tokens in the process and earn a small return for doing so. One problem, however, are arbitragers.
The XLS-30d discussion states, “They wait until the profit from the arbitrage transaction (and thus the expected loss of the pool) exceeds the trading fees” while competing against others trying to do the same.
Ripple proposes a unique mechanism in which the AMM entity continuously auctions trading benefits, charges for them, and passes those profits on to liquidity providers.
The idea is that XRPL makes AMM arbitrage faster and less risky, while increasing profits for liquidity providers and increasing overall liquidity in the system; “a win-win for everyone.”
The upgrade has the potential to bring deeper liquidity to the XRP ecosystem and can also be a huge On-Demand Liquidity (ODL) expansion enabler under certain circumstances.
After extensive testing and feedback from the community, RippleX plans to propose a change to add XLS-30d to the XRPL mainnet. Like any upgrade, XLS-30d will then have to clear the hurdle of an 80% approval from all validators on the XRP Ledger.
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