Ripple CTO David Schwartz recently rejected the idea that Automated Market Makers (AMMs) on the XRP Ledger (XRPL) could significantly reduce the volatility of XRP prices in the near term.
Despite the introduction of AMMs and their theoretical capacity to dampen volatility through mechanisms such as volatility harvesting and providing additional liquidity, Schwartz believes that the overall impact on XRP price fluctuations will be minimal.
Prior to that, Schwartz elaborated on Ripple’s strategy to leverage AMMs for Ripple payments, particularly focusing on institutional transactions.
The aim is to utilize the liquidity provided by AMMs on the DEX (Decentralized Exchange) to facilitate institutional payments, which could, in turn, help rebalance AMMs and harvest volatility.
This approach could theoretically contribute to reducing market volatility by making more efficient use of the liquidity on the XRPL, but Schwartz was candid about the limitations and the current scale of DEX trading activity.
He noted that while Ripple is exploring the use of the DEX for institutional payments, this was not a primary motivator for developing the AMM feature but acknowledged it as a beneficial byproduct.
The XRP Ledger’s significant move towards integrating AMMs has hit a snag as key validators retract their support following the discovery of a bug.
This development poses a serious threat to the amendment’s success, which previously enjoyed an 85.7% approval rating among validators. The setback has sparked concerns among the XRPL community and has led to calls for a revised proposal.
The amendment aims to introduce liquidity pools to the XRPL, facilitating decentralized trading and liquidity provision akin to other leading DeFi platforms.