Exploring the Relationship Between XRPL Meme Coins and XRP

Ripple CTO David Schwartz recently shared insights on how many meme coins on the XRP Ledger (XRPL) are directly impacted by XRP's price fluctuations.

Recently, Ripple CTO David Schwartz shed light on how several meme coins on the XRP Ledger (XRPL) are directly impacted by the price fluctuations of XRP.

In a recent post on X, Schwartz explained that a majority of these tokens rely on automated market maker (AMM) liquidity pools which maintain a fixed exchange rate with XRP. This, in turn, causes their prices to move in tandem with XRP’s dollar value.

As an example, he highlighted “XRP ARMY,” a meme coin on XRPL which has achieved a market cap of $26.1 million with a liquidity pool of $2.09 million.

How XRPL Meme Coins Move with XRP

In contrast to other ecosystems where meme coins might see drastic swings in price depending on hype or speculative trade, XRPL meme coins often see price changes that reflect XRP’s own price action. According to Ripple’s CTO, this is because their liquidity pools are set up inside AMMs which employ XRP at a fixed exchange rate.

For instance, if the price of XRP increases by 5% in US dollars, the meme coin will likewise rise by 5%, provided no other price movement occurs. Since the AMM keeps the XRP-to-memecoin ratio constant, any external changes in XRP are immediately reflected in the valuation of the associated asset, causing this automated adjustment.

However, despite this connection, XRPL meme coins are not entirely dependent on the price of XRP. Their value can be affected independently by external news, whale movements and community buzz which can influence the meme coin's price.

Even if XRP holders decide to retain their investments, a surge in the meme coin’s price could result in profit-taking. Due to this dynamic, traders who own XRPL meme coins are subject to two major price drivers:

* Changes in the price of XRP.

* Any events which affect the meme coin.

What This Means for Traders

Investors in meme coins based on XRPL should be aware that they have built-in exposure to XRP in their holdings. Meme coins might profit if XRP rises, but the same coins might automatically see price reductions if XRP falls. However, this pattern can quickly diverge due to memecoin-specific events.

This knowledge is crucial for traders who are trying to maximize their strategy. Some traders may use this association as an opportunity to predict memecoin price swings based on more general XRP patterns, while others may see it as a risk factor to consider.

The post "Mind Blown! 🤯 Nearly $2.4 Billion in XRPL Liquidity Is Used For…Memecoins? | CTO Explains", which was originally published on Monday, 21 August, 2023, 1:06 PM PST, on LinkedIn, can be found here: https://www.linkedin.com/posts/davidschaeff . It was written by David Schwartz, Chief Technology Officer at Ripple.

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