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- XRPL’s recently introduced AMM feature incorporates a mechanism to burn XRP tokens to deter spam transactions.
- This deflationary model aligns with the expanding DeFi ecosystem and enhances liquidity within the XRPL network.
The XRP Ledger (XRPL) recently rolled out its Automated Market Maker (AMM) feature, which enhances liquidity while simultaneously reducing the total supply of XRP tokens through burning mechanisms. This innovative step marks a significant stride towards a deflationary model within the XRPL ecosystem.
The introduction of the XRPL AMM feature incorporates a burning mechanism that triggers the reduction of XRP tokens when market participants create new AMM instances. Notably, creating each new AMM instance results in burning 2 XRP tokens, surpassing the standard transaction cost. This elevated cost aims to deter spam activities on the ledger, ensuring its efficiency and integrity.
Enhanced Scarcity and Value Proposition
Panos Mekras, a prominent figure within the XRP community and co-founder of Anodos Finance, highlighted the deflationary nature of the AMM feature. This feature boosts liquidity and enhances scarcity within the XRP ecosystem. Lee Harrow, another active member of the XRP community, emphasized the implications of this functionality, underscoring its role in reinforcing the scarcity of XRP tokens, whose total supply is capped at 100 billion.
Did you know? When a new AMM pool is created on XRPL, 2 XRP is burned.
Instead of the standard minimum transaction cost of 0.00001 XRP, "AMMCreate" must destroy at least the incremental owner reserve amount, currently 2 XRP. This is the same special transaction cost as…
— Panos 🔼{X} (@panosmek) April 6, 2024
Mekras further elucidated that XRP inherently possesses deflationary attributes, with a maximum of 100 billion tokens slated for creation. Over 12 million XRP tokens have been burned since the inception of the XRPL. This deflationary nature stems from the transaction fee mechanism embedded within the XRPL, where fees incurred are subsequently burned, gradually reducing the total token supply over time. Initially devised to combat spam, this mechanism now bolsters the asset’s value by fostering scarcity.
This creates more scarcity with a supply that is already fully created, 100 billion. Demand, scarcity, good things. If I follow the logic correctly?
— Lee Harrow (@LeeHarrow2024) April 6, 2024
The XRPL community has enthusiastically greeted these developments, evident in the rapid establishment of over 193 AMMs within three weeks of the feature’s launch. This burgeoning ecosystem augments liquidity and accelerates the pace of XRP token burns, further contributing to its deflationary trajectory. With the continuous creation of AMMs, the XRPL ecosystem is poised for sustained growth and increased token burns, bolstering liquidity and scarcity dynamics.
Node Operators Urged to Upgrade
RippleX, the developer arm of Ripple, has issued a crucial advisory to node operators, urging them to swiftly upgrade to version 2.1.1 of the XRPL reference server implementation. The urgency stems from a critical Automated Market Maker (AMM) vulnerability addressed in this latest release. Failure to update in time may result in amendment blocking, a measure aimed at ensuring the security and stability of the network.
Final reminder to all #XRPL node operators to please upgrade to 2.1.1!
'fixAMMOverflowOffer' goes into effect early Thursday morning.https://t.co/WdnoxTSdhY
— RippleX (@RippleXDev) April 9, 2024
The latest version, 2.1.1, which became available a week ago incorporates a significant amendment designed to rectify the AMM vulnerability. This fix is poised to fortify the XRPL ecosystem by bolstering its resistance against potential threats. With the activation of the AMM amendment scheduled for this Thursday, RippleX emphasizes the paramount importance of node operators promptly executing the upgrade to avoid any disruptions in service and potential security breaches.
David Schwartz, Ripple’s chief technology officer, characterized the introduction of the AMM bug fix as a «significant moment» for the XRPL. He highlighted its potential to catalyze the expansion of the decentralized finance (DeFi) ecosystem. The AMM mechanism, which enables the transition from traditional order books in favor of individual liquidity pools, is anticipated to enhance the efficiency and flexibility of financial transactions on the XRPL platform.
