u.today
Panos Mekras, co-founder of Anodos Finance, recently took to the X social media network to clear up the main misconceptions about the XRP Ledger's Automated Market Maker (AMM) feature.
As noted by Merkas, providing liquidity should be seen as a separate income strategy, meaning that users do not have to add the XRP tokens that they intend to hold. "As a liquidity provider, you care about income and fees earned by the trading activity. It's better if you don't care if you end up with more on one side and less on the other. Total profit is what matters," he added.
Impermanent loss, a risky scenario that can be triggered by price volatility causing a temporary decrease in value, can actually benefit users in some scenarios, according to the Anodos Finance co-founder.
Notably, different pools have different degrees of risk associated with them. "Not all pools are created equal, and not all pools have the same risk," Mekras said. Providing liquidity into a stablecoin pool with pairs like USD/EUR carries minimal risk. Meanwhile, pools that contain two volatile cryptocurrency tokens that tend to have a high level of correlation (case in point: XRP and XLM) can be quite risky.
He has also noted that there is no staking or earning with XRP tokens, meaning that users can only give their assets to AMM, thus allowing others to trade them. In return, they can get a fee for that.
XRP Ledger's AMM feature went live earlier this year. However, its launch has been mired by technical issues.