Automated Market Makers (AMM)
Trading Mechanism
Automated Market Makers (AMMs) are smart contract systems that replace traditional order books with algorithmic liquidity pools. On XRPL, AMMs allow users to provide assets into pools and earn a share of swap fees, while traders can instantly swap tokens at algorithmically determined prices. This creates continuous liquidity without requiring centralized intermediaries or matched buyers and sellers.
Use Case: On the XRPL, a user supplies $XRP and $RLUSD into an AMM-enabled pool. In return, they receive LP tokens representing their share of the pool. As swaps occur, fees are distributed to liquidity providers automatically. By contrast, on the FLR network, users engage in swaps and XRP staking rather than AMM-based pools, with staking mechanisms still being rolled out.
Key Concepts:
- Liquidity Pool — Reserves of tokens held in the AMM for swaps.
- LP Tokens — Represent a user’s stake in an AMM pool.
- Swap Fee — Portion of each trade paid to liquidity providers.
- Impermanent Loss — The risk faced when pooled tokens diverge in value.
Summary: While swaps and XRP staking are emerging on the FLR network, AMMs remain exclusive to the XRPL—currently the primary hub for pool-driven liquidity. As XRP staking on FLR is still new and evolving, this landscape is changing rapidly.