XRPL AMM Debunked: Co-Founder Clears Misconceptions on XRP Liquidity, Impermanent Losses

Anodos Finance co-founder Panos Mekras addressed misconceptions regarding the XRP Ledger (XRPL) Automated Market Maker (AMM) implemented earlier this year. Mekras clarified that providing liquidity, which can generate income and fees, is a separate strategy not requiring the use of XRP tokens intended for holding. Users should focus on total profit rather than balancing holdings, as impermanent losses in the DeFi ecosystem can be beneficial in certain scenarios.

Automated Market Maker on XRP Ledger Clarified by Co-Founder

Amidst the recent launch of the Automated Market Maker (AMM) on the XRP Ledger (XRPL), Panos Mekras, co-founder of Anodos Finance, has endeavored to dispel misconceptions surrounding its mechanics.

Addressing Confusion over XRP Liquidity Provision

Mekras has emphasized that users are not obligated to provide XRP as liquidity when utilizing the XRPL AMM. This clarification arises from some misunderstandings that have emerged alongside technical difficulties experienced by the platform.

The Anodos Finance executive elucidated that liquidity provision should be perceived as a distinct income-generating strategy. Users are not required to contribute XRP tokens intended for retention. "Your focus as a liquidity provider should be on the income and fees accrued from trading activities," Mekras explained. "The relative amounts of assets held on either side are secondary considerations."

Clarification on Impermanent Losses

Mekras further addressed concerns regarding impermanent losses, a potential financial risk associated with liquidity provision on the XRPL AMM within the Decentralized Finance (DeFi) ecosystem. He highlighted that these losses can be both beneficial and detrimental.

In certain scenarios, impermanent losses can actually be advantageous for users. Mekras cited examples where such losses potentially translate into increased profits.

Summary of Clarifications

To provide additional clarity, Mekras outlined the following key points on Twitter:

• Users are not required to provide XRP liquidity.
• Liquidity provision should be considered as a separate income strategy, distinct from asset holding.
• Liquidity providers prioritize income and fees generated by trading activities.
• Impermanent losses can be either positive or negative, depending on specific circumstances.

Mekras's elucidations aim to mitigate confusion and provide a more comprehensive understanding of the XRPL AMM for the general public.