Panos Mekras, co-founder of Anodos Finance, addressed misconceptions about XRP Ledger’s Automated Market Maker (XRPL AMM) on social media recently. He clarified that providing liquidity is an separate income strategy and users don’t need to add XRP tokens they plan to hold. Mekras explained that as a liquidity provider, the focus should be on income and fees earned from trading activity.
The co-founder of Anodos Finance, Panos Mekras, used X platform not long ago to clarify some common misunderstandings regarding the XRP Ledger’s Automated Market Maker (AMM), which became operational at the start of this year.
Addressing Impermanent Loss Confusion
There seems to be some misunderstanding about the requirement for users of the XRPL Automated Market Maker (XRPL AMM) to contribute XRP as liquidity. This confusion arises during the technical hurdles that XRPL AMM has recently encountered.
Mekras instructed his audience that supplying liquidity could serve as an alternative income source, distinct from holding XRP tokens. No need to set aside XRP for this purpose.
An Anodos Finance executive explained that as a liquidity provider, focusing on the income generated from trading activities and the associated fees is essential. The outcome of having more or less in one pocket versus the other should not concern you. Instead, prioritize calculating your overall profit to gauge success.
In clarifying the ambiguity surrounding impermanent losses, Mekras added that these losses, a risk inherent in supplying liquidity to an Automated Market Making (AMM) platform on the XRP Ledger within a Decentralized Finance (DeFi) system, can actually turn out to be advantageous for the investor.
Let’s clear up some common misunderstandings regarding XRPL’s Automated Market Maker (AMM):
— Panos {X} (@panosmek) April 27, 2024
Frequently, losses occur due to a few incidents such as price fluctuations which may lead to a momentary dip in value. Contrary to common misunderstandings, Mekras pointed out that XRP tokens do not offer staking or earning opportunities. Instead, users can only contribute their holdings to the Automated Market Maker (AMM) and receive compensation for doing so.
XRP Ledger (XRPL) AMM Pools Have Varying Risks
It is worth noting that all XRP Ledger (XRPL) AMM pools are designed differently and therefore, have different degrees of risks.
As a crypto investor, I’d describe it this way: In his recent X post, Mekras shared his perspective on the current market outlook, highlighting several cryptocurrency assets with differing levels of risk. For those looking to minimize their risks, he suggested supplying liquidity in stablecoin pairs such as USD/EUR.
Investing in pools containing two unstable digital assets increases the risk level significantly. Among such pairs, XRP/XLM was cited as an example.
During the operation of the XRPL Automated Market Maker (AMM), a fresh amendment titled “fixAMMOverflowOffer” has been adopted. This amendment addresses an issue discovered upon the initiation of the AMM engine, which involved container overflow.
The repairs and explanations provided by Mekras could help improve XRPL AMM’s perception among potential users, making it more appealing.
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2024-04-29 10:16