Panos Mekras, co-founder of Anodos Finance, clarified common misconceptions about the XRP Ledger’s Automated Market Maker (AMM) feature on X social media recently. As Mekras explained, supplying liquidity is a distinct income strategy. Users don’t need to contribute XRP tokens they plan to hold. “As a liquidity provider,” he stated, “you focus on income and fees from trading activity. It’s preferable if you don’t mind having more of one asset and less of the other. Total profit is what counts.”
Panos Mekras, a co-founder of Anodos Finance, used X social media to debunk common misunderstandings regarding the Automated Market Maker (AMM) function of the XRP Ledger.
According to Merkas’ perspective, generating income through liquidity provision is a distinct approach, implying that users need not contribute XRP tokens they plan to keep. In simpler terms, as a liquidity provider, your focus should be on the earnings from trading fees rather than the quantity of assets on each side. The ultimate objective is to maximize profits.
In certain situations, the transient reduction in value due to impermanent loss, which is a potential drawback brought about by market volatility, can turn out to be advantageous for users, as suggested by the co-founder of Anodos Finance.
It’s important to note that different pools come with varying levels of risk. Not all pools are equally safe, and the risk level can differ significantly. For instance, supplying liquidity to a stablecoin pool with pairs like USD/EUR involves minimal risk. On the other hand, pools consisting of two volatile cryptocurrencies with strong correlation, such as XRP and XLM, can be quite risky.
Users cannot stake or generate returns using XRP tokens; instead, they can merely transfer their tokens to Automated Market Makers (AMMs) for trading purposes. Subsequently, they receive fees as compensation.
The living-breathing XRP Ledger introduced its Automated Market Maker (AMM) functionality earlier in the year. Regrettably, its debut has been marked by various complex problems.
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2024-04-28 15:51