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- XRP holders can earn passive income by providing liquidity to the new AMM on the XRPLedger, but just holding XRP won’t do.
- Ripple’s CTO clarified how to earn passive income with XRP in the upcoming AMM, emphasizing the need to provide liquidity.
Ripple’s Chief Technology Officer (CTO), David Schwartz, has shed light on the potential for generating passive income with XRP through the upcoming XRP Ledger (XRPL) Automated Market Maker (AMM) amendment. Responding to concerns raised by prominent XRPL DUNL validator Vet, Schwartz clarified that while passive income opportunities exist, they operate differently from traditional staking mechanisms.
🚨The XRP Ledger AMM is in activation and i see a ton of posts claiming passive income for XRP holders after activation and that you never need to sell your XRP. They are taking advantage of the inexperience of community members with DeFi.
– The XRPL AMM is not giving you any… pic.twitter.com/PyuWnyOdY7
— Vet 🏴☠️ (@Vet_X0) March 9, 2024
Vet’s disclaimer highlighted a crucial point: the AMM amendment won’t provide passive income to XRP investors merely for holding their tokens. Rather, investors need to become liquidity providers by giving any AMM instance their XRP tokens. Market participants involved in AMM deals would then have access to these tokens as liquidity.
Schwartz emphasized that exchanging XRP for claims against AMM pools is necessary to use the AMM system to generate passive revenue. Though they can get their XRP back, investors might not get the same amount back because of the volatility of the market and transient loss.
Yes, but the mechanic is different from things like staking. To get passive income from XRP with the AMM, you have to trade your XRP for claims against the AMM pools. While they hold XRP and you can reclaim XRP on demand, you are not guaranteed to get as much out as you put in.
— David "JoelKatz" Schwartz (@JoelKatz) March 9, 2024
Schwartz’s comments sparked discussions within the XRP community, with industry figures offering diverse perspectives. According to Panos Mekras, impermanent loss may not necessarily be negative when an asset’s value fluctuates within a liquidity pool. Mekras demonstrated how a decline in the value of XRP could result in liquidity providers holding more XRP and less USD than they initially deposited using the example of an XRP/USD pool.
Mekras suggested that this result, similar to an automated Dollar-Cost Averaging (DCA) method, would be helpful for people who prioritize XRP. Furthermore, WrathofKahneman agreed that providing AMM liquidity has the potential to provide passive income but cautioned that, in contrast to certain other passive income options, it does not guarantee profit.
What this basically means is that impermanent loss doesn't always have to be perceived as a loss. If you provide liquidity to an XRP/USD pool, for example, and XRP price crashes then you will have more XRP and less USD than what you initially deposited to the pool. Is that a… https://t.co/OtQS2kV2ya
— Panos 🔼{X} (@panosmek) March 10, 2024
Anticipating the Implementation of the AMM Amendment on XRPL
As per the data provided by XRPscan, AMMs are anticipated to activate on the XRPLedger by March 22, 20:10 UTC. Discussions about XRP’s price movements have also heated up as anticipation grows. Despite recent declines, the altcoin has kept its price above the psychologically important $0.60 mark. With important resistances at $0.6293 and $0.6500 on its route to perhaps hitting its 2024 peak of $0.6685, XRP is exhibiting indications of an upward trend at its current price of $0.62.
The activation of the XRPL AMM has sparked misconceptions among some investors, particularly regarding earning passive income by merely holding XRP. Validators and industry experts have moved to clarify that participation in AMM requires active engagement and liquidity provision, contrary to the passive income generated through staking mechanisms. This clarification aims to educate investors and promote a more realistic approach to participating in XRPL’s DeFi features.
In addition to the AMM activation, discussions within the XRP community have revolved around the possibility of burning excess XRP held in escrow. Calls for a vote on this matter have prompted responses from David Schwartz, who emphasized the principles of ownership and control in cryptocurrency. Schwartz reiterated the importance of individual control over digital assets, underlining the decision-making authority vested in asset owners.
