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XRPL’s New AMM

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Summary

This article provides an overview of the XRPL's new Automated Market Maker (AMM), which is a core primitive of the XRP Ledger. It explains five key features that distinguish the new AMM: Protocol-Native AMM, No MEV or Front-Running, Single-Sided Liquidity Provisioning, Central Limit Order Book Integration, and Continuous Auctions. It also discusses the advantages, drawbacks, and implications of the new AMM, as well as the XRP Ledger's architecture, its developer community, and its potential for future growth.

Q&As

What is the XRPL's new Automated Market Maker (AMM) design?
The XRPL's new Automated Market Maker (AMM) design is a novel design that integrates directly into the XRPL itself as a core primitive.

How does the XRPL's AMM protocol differ from traditional blockchain-based AMMs?
The XRPL's AMM protocol differs from traditional blockchain-based AMMs in that it integrates directly into the XRPL itself as a core primitive, uses federated consensus and canonical transaction ordering to eliminate MEV and front-running, and enables single-sided liquidity provisioning.

What are the benefits of the XRPL's single-sided liquidity provisioning?
The benefits of the XRPL's single-sided liquidity provisioning are that it removes friction for liquidity providers, as they only need to deposit a single asset into a given pool, with half of the asset's value being automatically converted into the paired asset.

What is the function of the Central Limit Order Book (CLOB) on the XRPL?
The function of the Central Limit Order Book (CLOB) on the XRPL is to provide limit orders (referred to as offers) that may be either partially or fully filled, and to enable auto-bridging where trades automatically use XRP as an intermediary token should it be cheaper than trading directly token-to-token.

How does the XRPL's continuous auction process work?
The XRPL's continuous auction process works by allowing arbitrageurs to bid for 24-hour windows during which they’re subject to near-zero trading fees. If another party were then to outbid them, they would be refunded pro rata. The bid amounts that are processed are distributed amongst each AMM pool, in turn compensating liquidity providers and mitigating impermanent loss.

AI Comments

👍 This article provides a great overview of the XRPL's new AMM and the innovative features that make it stand out from other blockchains. It is clear that the XRPL has a great potential to drive more adoption and build a strong developer community.

👎 While the XRPL's new AMM may seem promising, it is still in the devnet stage and it is unclear how it will function in practice. Additionally, there is still a lack of quantitative data to evaluate the potential effectiveness of the 24-hour auction system for arbitrageurs.

AI Discussion

Me: It's about a new automated market maker (AMM) design for the XRP Ledger that was proposed by Ripple in early 2022. It's been implemented on a devnet, and could be launched on the mainnet pending approval. It integrates directly into the XRPL itself as a core primitive, and has five features that distinguish it from other blockchain-based AMMs.

Friend: Interesting. What are the implications of this article?

Me: The implications are that developers building on the XRPL can now focus on more important innovations without needing to commit resources to attracting AMM liquidity. It also eliminates the potential for miner extractable value (MEV) and front-running by using federated consensus and canonical transaction ordering. Furthermore, liquidity providers can now deposit a single asset into a given pool, and arbitrageurs can bid for 24-hour trading slots for the AMM with near-zero fees. This could lead to greater scalability, efficiency, and profitability for the XRPL and DeFi in general.

Action items

Research the XRPL and its new AMM in more detail.
Join the XRPL’s Apex Summit in Amsterdam this September.
Experiment with the XRPL’s new AMM on the devnet to gain a better understanding of its features and capabilities.

Technical terms

Automated Market Maker (AMM): A type of decentralized exchange (DEX) that uses a mathematical formula to set prices and match buyers and sellers.
Devnet: A development network, or testnet, that is used to test and develop applications before they are released on the mainnet.
Mainnet: The main blockchain network, where transactions are recorded and stored permanently.
XRPL: The XRP Ledger, an open-source blockchain that is independent of Ripple.
MEV: Miner Extractable Value, a form of profit that miners can extract from the blockchain.
Front-Running: A form of MEV whereby a profitable transaction is seen in the mempool and the same trade is made, albeit with a higher gas fee so that it is executed first.
Federated Consensus: A consensus mechanism where only a subset of validator nodes must come to consensus, which significantly increases throughput.
Canonical Transaction Ordering: A deterministic way of ordering transactions that is hard to predict, while all network nodes still agree on the order of transactions.
Central Limit Order Book (CLOB): A type of order book used in traditional finance, where orders are executed based on matching buy/sell orders.
Continuous Auction: A process where arbitrageurs bid for 24-hour windows during which they’re subject to near-zero trading fees.