XRPL AMMs could offer a means for XRP proponents to hedge their trading and investment bets, according to Anodos founder Panos Mekras.
Following the introduction of the automated market maker (AMM) functionality on the XRP Ledger nearly a year ago, much of the focus has been on how it could help bolster liquidity for DeFi while also allowing users who choose to provide liquidity to earn from fees.
Recently, however, a prominent member of the XRP community has highlighted a likely overlooked potential benefit of this new functionality following the implementation of the AMM clawback amendment. The amendment has allowed for the inclusion of regulated stablecoins with clawback feature in XRPL liquidity pools.
A Hedge?
XRPL AMMs could offer a means for XRP community members to hedge their trading and investment bets. This is according to Panos Mekras, co-founder of XRPL-facing software provider Anodos.
The finance expert made this case in a recent X post, premising his view on the concept of impermanent loss.
How to use XRPL’s AMM as a hedging strategy:
Providing liquidity to an XRP/stablecoin pair gives you less exposure to XRP’s upside, but also less exposure to XRP’s downside.
The potential risk with providing liquidity on an AMM is impermanent loss. But it doesn’t need to be…
— Panos 🔼{X} (@panosmek) January 30, 2025
Impermanent loss is one of the most discussed risks associated with providing liquidity to an AMM. It is a temporary loss that occurs when a pool becomes imbalanced due to price fluctuations of the tokens in the pool. When the pool is imbalanced, the value of tokens within the pool is no longer equal to the value you can withdraw.
It is seen as temporary, as the loss can be recovered if the price returns to its original value. This is why many often recommend that liquidity providers only provide assets they want to earn fees on, not assets they wish to hold, as price fluctuations are par for the course in crypto.
Still, Anodos’ Mekras has suggested that LPs could leverage this perceived risk as part of a sophisticated investment strategy using token/stablecoin pools. The XRPL community recently made support for this type of liquidity pool possible with the AMM clawback amendment, which allowed for the inclusion of regulated stablecoins with clawback features, like RLUSD, in XRPL AMMs.
Using the XRP/RLUSD pair as an example, Mekras highlighted that the pool offered limited exposure to XRP’s upside but also limited exposure to its downside.
Specifically, if XRP’s price soars, liquidity providers will be able to withdraw less XRP but more RLUSD than deposited. At the same time, if XRP’s price crashes, they will be able to get more XRP and less RLUSD. As such, LPs can get value either way.
This value can be used to cover losses from real-time trading positions or investment holdings, Mekras posits.
RLUSD AMM Adoption Soaring
Amid the liquidity, passive income, and hedging benefits of token/stablecoin AMM pairs, RLUSD has seen quick adoption in XRPL AMMs.
In the five days since the AMM clawback amendment went live, at least 68 RLUSD-based liquidity pools have launched per xrpmarket data.
The most popular pool, the XRP/RLUSD pool, has already attracted over $1.4 million in liquidity, with over 280,500 XRP worth over $717,000 to nearly 719,000 RLUSD, worth roughly $713,000.
