The XRP Ledger (XRPL) network may add two new types of exchange pools if the network’s validators approve a technical standard published by the XRP Ledger Foundation today, May 26th.
The proposal, called XLS AMM v2, refers to the XRPL DEX, a decentralized exchange directly integrated into the protocol that allows any user to exchange tokens without intermediaries. In that DEX, The XLS AMM v2 integration adds a centralized liquidity pool and another pool called StableSwap.. According to the XRPL Foundation team, these two pools record the majority of the trading volume of established decentralized finance (DeFi) platforms.
In this context, an exchange pool is a common fund of tokens deposited by users who wish to earn commissions in exchange for facilitating operations. When someone wants to exchange one token for another on the XRPL DEX, the protocol retrieves the tokens from the pool and passes the corresponding tokens to the buyer. Liquidity providers charge a percentage of each trade.
Currently, according to the XRPL standard repository, the network offers only one type of pool. It is a pool that distributes capital equally across all possible prices. This means that most of the funds deposited remain idle most of the time and are available at price points that are rarely reached.
The XRP Ledger Foundation said in an announcement that the new pool type will improve the trading of stablecoins, currency markets, and tokenized real-world assets on the network, as reported by CriptoNoticias, and identified areas where XRPL is ramping up its activity, most notably with the launch of the RLUSD stablecoin in December 2024.
What changes with each new type of pool?
Concentrated liquidity (the first pool model) is based on the following idea. Currently, most of the capital deposited in the pool is This is never used because the actual price varies within an even narrower range.
Due to concentrated fluidity, The person providing liquidity selects the range in which they wish to operate. Facilitating trades between two stablecoins that consistently trade around $1 allows you to focus all your funds there instead of spreading them out into a range that will never reach you. Therefore, the same funds will incur more fees, explains the XLS AMM v2 proposal repository. This is the model that Uniswap v3 uses on Ethereum, where around 60% of the volume of the most used DEX is concentrated, according to data cited in the Angell and Thpt whitepaper.
Risks are proportional to benefits. If the price falls outside the selected range and the supplier does not adjust the position, You may end up with a combination of tokens that is worth less than if you simply stored the tokens.. This phenomenon, known as amplified non-permanent loss, is the main risk of this model.
StableSwap for assets that rarely move
The second model shows a different problem. When two assets trade close to fixed parity (a $2 stablecoin, two versions of the same tokenized asset, a low-volatility currency pair), the current model causes the price to move more than necessary on each trade, increasing the cost of the exchange.
StableSwap uses a mathematical curve designed to remain flat around the equilibrium price. Aiming to move larger volumes while minimizing the impact on the final price. The “flatness” level is configurable when creating a pool, and according to the whitepaper, this model concentrates approximately 10-15% of the volume of the consolidated DEX.
The document also reserves a third type of pool, fully programmable, for complementary proposals that have not yet been published.
Finally, this standard does not have a voting schedule and requires the support of a network validation tool to activate. If approved, no changes are required to your existing pool. The current model is still available, and each pair of tokens can have one pool of each type at the same time. The protocol automatically chooses the one that offers the best price for each operation without user intervention.
(Tag Translation) Blockchain
