AMM Arrival Does Not Guarantee Passive Income With XRP: XRPL Validator

Vet, an outspoken DUNL validator on the XRP Ledger (XRPL), has debunked claims that the upcoming automated market maker (AMM) could provide passive income to XRP holders.

The XRPL ecosystem is currently anticipating the arrival of the automated market maker feature, slated for March 22. Amid the growing anticipation, reports have emerged on the prospect of securing a passive income opportunity with the AMM.

However, some of these reports have erroneously suggested that the XRP proponents could actually secure this passive income opportunity by merely holding their tokens. The vet recently took X to debunk these claims and clarify the dynamics involved.

According to Vet, these misleading reports exploit the limited expertise of certain XRP community members. These include proponents who may be less proficient in the technical intricacies of how blockchains function.

🚨The XRP Ledger AMM is in activation and i see a ton of posts claiming passive income for XRP holders after activation and that you never need to sell your XRP. They are taking advantage of the inexperience of community members with DeFi.

– The XRPL AMM is not giving you any… pic.twitter.com/PyuWnyOdY7

— Vet 🏴‍☠️ (@Vet_X0) March 9, 2024

Vet clarified that the AMM would NOT give any investor income just for holding their XRP tokens without putting them to work. The validator rightly stressed that any network participant looking to secure passive income would need to give their XRP to the AMM.

Only Way to Earn with the XRPL AMM

Notably, this process involves the provision of liquidity. The Crypto Basic has called attention to this in a series of previous reports. Providing liquidity to an AMM entails depositing funds into a liquidity pool on the AMM. This helps facilitate decentralized trading by bolstering liquidity.

In return, the liquidity provider would earn a share of trading fees and contribute to price stability. Highlighting this point, Vet emphasized that the XRP tokens deposited by market participants would then be purchased and sold by swappers using the pool.

Sharing a link to an educational resource for more information, he stressed that proponents would appreciate the upcoming AMM more if they were well-informed on its workings. In addition, the right information would help mitigate the chances of disappointment when investors do not receive passive income for merely holding XRP.

Moreover, market participants must understand that profit is not guaranteed even when they become liquidity providers. There are also risks of impermanent loss, which occurs when the value of XRP or any other asset drops significantly while held in a liquidity pool.

This information is essential, seeing as the XRPL community is set to welcome the AMM in the next 11 days. Recall that the AMM amendment first gained validator consensus on Feb. 1. Following this development, the network was to activate the feature on Feb. 14.

However, the community discovered a bug with the AMM code, leading to some validators rescinding their support. The bug was summarily fixed, and the amendment re-introduced. It has now re-gained validator consensus, with 91% drumming support. The AMM will activate on March 22.

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