The introduction of the Automated Market Maker (AMM) feature on the XRP Ledger (XRPL) marks a significant milestone in its journey towards a deflationary model. This new functionality not only provides liquidity but also includes a built-in mechanism to burn XRP tokens, thereby contributing to its scarcity.
Panos Mekras, a prominent figure in the XRP community and co-founder of Anodos Finance, recently highlighted the deflationary impact of the AMM feature. He explained that the creation of a new AMM instance on the XRPL leads to the burning of 2 XRP tokens. This burn rate is substantially higher than the standard minimum transaction cost, which is only a fraction of an XRP. This increased cost serves to prevent spam on the ledger.
The introduction of the AMM feature is a response to the growing popularity of Decentralized Finance (DeFi) and Automated Market Makers in particular. Unlike traditional trading systems, the AMMs on the XRPL are designed to work in harmony with the existing decentralized exchange, offering users the best of both worlds.
One noteworthy aspect of the XRPL AMM is its fee auction mechanism, which allows liquidity providers to bid for reduced fees. This incentivizes participation in the AMM and has caught the attention of Ripple CTO David Schwartz, who suggested that market participants could burn LP tokens through this avenue.
However, the deflationary impact of the AMM feature is an additional advantage. In response to Mekras, Lee Harrow, another active member of the XRP community, inquired about the implications of this feature and its effect on enhancing scarcity. This is particularly important considering that the total supply of XRP is capped at 100 billion tokens.
Mekras confirmed that XRP is inherently deflationary, with a maximum of 100 billion tokens ever to be created and over 12 million already burned. Data from XRPScan verifies that the XRPL has burned exactly 12.311 million XRP since its inception, with this figure increasing from 11 million last April.
The deflationary nature of XRP is a result of its design. Each transaction on the XRPL incurs a fee, which is subsequently burned, gradually reducing the total supply over time. While this mechanism was originally intended to combat spam transactions, it also supports the value of the asset by creating scarcity.
The recent disclosures regarding the XRPL AMM feature have been met with enthusiasm from the community. Within less than three weeks since its launch, over 193 AMMs have been established, indicating a rapidly growing XRPL ecosystem. The creation of more AMMs could further enhance liquidity and contribute to additional XRP burns.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. The views expressed in this article are solely those of the author and do not necessarily reflect the opinions of The Crypto Basic. Readers are advised to conduct their own research and analysis before making any investment decisions. The Crypto Basic is not responsible for any financial losses incurred.
