In recent responses on social networks X, Ripple CTO David Schwartz explains the AMM liquidity groups in relation to the Ripple Usd (Rlusd) Stablecoin. This was in response to an X user who had sought clarifications regarding the subject.
The automated market manufacturer (AMM) in XRP Ledger uses liquidity groups instead of traditional order books to facilitate trades. AMM functionality was enabled with the XLS-30D amendment in March 2024.
The amendment of cards, which was launched in January this year, allowed Riple Ripple Rlusd Stablecoin to float and negotiate directly in the XRP Ledger DEX, increasing its liquidity and negotiation options and increasing the activity of decentralized finance (defi) in the XRPL network.
RLUSD AMM LIQUIDITY POOL EXPLAINED
According to Schwartz, the AMM liquidity group contains a lot of RLUSD and XRP, each of approximately equal value. It also issues files that represent claims against the group for a proportional participation of their assets.
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When the price of XRP low, the group converts Rlusd into XRP to match the values; On the other hand, when the price of XRP rises, the group converts XRP into RLUSD for value equalization.
The objective is to always increase the value of the group’s constant (the amount of sometimes the amount of XRP divided by the number of pending tokens) and never allow it to decrease.
According to CTO Ripple, the idea behind the AMM liquidity group is that, regardless of whether the XRP price makes a round trip, the value of each liquidity token would serve to maximize the pool constant.
The value of liquidity tokens in the pool can also increase as people use the pool as a liquidity source to negotiate XRP by RLUSD and pay a differential. The Ondulation CTO declared that while tokens win and lose value with the changes in the price of XRP, it can be less significant than those experienced by possessing only XRP.
In additional responses, Ripple CTO explained that, since the liquidity group has half of RLUSD and half XRP, the assumption is that tokens headlines want to be long in XRP and benefit from their volatility.
