Get Ready for Automated Market Makers (AMM) on the XRP Ledger

The Automated Market Maker (AMM) Amendment to the XRP Ledger protocol is set to revolutionize decentralized trading by introducing AMM functionality. This milestone concludes a two-year development effort, spearheaded by Ripple's Aanchal Malhotra and David Schwartz, and refined through community feedback.

Key Highlights

Mainnet Activation: Expected on March 22, 2024, pending sustained validator supermajority support.
Backward Compatibility: Existing servers remain functional, but upgrading to rippled 2.1.0 is recommended for performance optimizations.
Synergy with CLOB DEX: Combines the granularity of limit orders with AMM’s liquidity efficiency.

👉 Explore how AMM enhances trading efficiency

Background: AMM vs. CLOB DEX

The XRP Ledger’s Central Limit Order Book (CLOB) DEX has long enabled peer-to-peer asset trading. Meanwhile, other blockchains adopted AMMs with "constant product" algorithms.

Key Differences

| Feature | CLOB DEX | AMM |
|------------------|-----------------------------------|-----------------------------------|
| Pricing | User-set orders | Algorithm-driven rates |
| Liquidity | Funds remain flexible | Funds locked in pools |
| Efficiency | Manual rate updates | Dynamic price adjustments |

Advantage of XRPL’s AMM:

Fee Auctions: Liquidity providers bid for reduced trading fees.
Hybrid Trading: Transactions automatically route through AMM or CLOB for optimal rates.

Action Items for Developers

Prepare for New Data Types:
- 6 new AMM transaction types (e.g., AMMCreate, AMMDeposit).
- AMM ledger entries and AMMID fields in AccountRoot.
- Updated transaction result codes.
Update Parsing Tools: Ensure compatibility with AMM-related metadata.

👉 Upgrade to rippled 2.1.0 for seamless integration

How to Use AMM

Step-by-Step Guide

Create an AMM:
- First user initializes the pool for a currency pair (tutorial).
Deposit Funds: Subsequent users add liquidity to existing pools.
Trade: Standard DEX trades auto-utilize AMMs when rates are favorable.

Example: Trading XRP/USD routes through the AMM if its rate beats the order book.

FAQ

1. What happens if validator support drops below 80%?

The amendment pauses until the supermajority is restored.

2. Can I withdraw AMM liquidity anytime?

Yes, via AMMWithdraw transactions.

3. How are AMM fees calculated?

Fees are algorithmically set based on pool volume and bid auctions.

4. Is AMM safer than CLOB DEX?

Both are secure, but AMMs reduce impermanent loss via hybrid routing.