Ripple’s Chief Technology Officer, David Schwartz, recently took to Twitter to express his opinions on investing in $XRP through an Automated Market Maker (AMM), in response to a question regarding how much of his XRP holdings he would assign to an AMM post-launch.
It’s worth noting that an Automated Market Maker is a form of decentralized exchange that allows users to buy and sell cryptocurrencies without the use of third-party intermediaries. To facilitate trading, these employ liquidity pools rather than standard order books. These pools comprise tokens provided by liquidity providers, who earn a percentage of trading fees.
In response, Schwartz projected that a third to a quarter of his XRP would be committed to the platform. The CTO of Ripple then provided three reasons why XRP investors should be cautious when considering putting their tokens in an AMM.
Schwartz’s initial concern is AMM’s exposure to other digital assets. He stated that because AMMs provide liquidity for various assets, the price of one item can affect the value of all the other assets in the pool, including XRP.
Long-term XRP investors who do not wish to be exposed to the price volatility of other assets may be at risk due to this. Schwartz also mentioned the possibility of implementation flaws. He pointed out that because AMMs rely on complicated smart contracts, there is always the possibility of faults or weaknesses in the code, which could lead to the loss of investor assets.
While admitting the utility of AMMs for trading tokens, Schwartz emphasized the significance of investors thoroughly researching and comprehending the potential dangers before investing in XRP through an AMM.
Finally, Schwartz recognized a third danger of holding XRP in the AMM as a limited potential for big gains. He reasoned that, while AMMs can provide liquidity for XRP and other tokens, they may not consistently result in significant price gains for XRP.
