XRP Ledger has taken another step towards maintaining the XRP deflationary model by introducing an Automated Market Maker (AMM). Although this feature was primarily introduced to provide liquidity, it also has a built-in token burning feature.
Once a user creates a new AMM account, the AMM feature will facilitate the destruction of XRP tokens. This burning feature will help preserve the long-term value of XRP by promoting scarcity.
XRPL AMM feature will burn XRP tokens
In one of the many community discussions about the new feature, well-known cryptocurrency personality Panos Mekras take Please X explain how the token burning model works. Mekras, who is also the co-founder of Anodos Finance, noted that the AMM feature helps maintain XRP’s inherently deflationary nature.
did you know? When a new AMM pool is created on XRPL, 2 XRP will be destroyed.
“AMMCreate” must burn at least the incremental owner reserve amount (currently 2 XRP) instead of the standard minimum transaction cost of 0.00001 XRP. This is the same special transaction cost as…
— Panos 🔼{X} (@panosmek) April 6, 2024
He stated that the XRPL feature automatically burns 2 XRP tokens for every newly created AMM, with a burn rate higher than the previous standard transaction cost.
A small portion of XRP tokens are burned to send transactions on the XRP ledger. This protects the ledger from spam. However, with the new AMM, 2 XRP coins will be destroyed for each account created.panos famous The AMM feature can burn an average of 2,500 XRP per day.
Additionally, the AMM feature features a fee auction mechanism that allows liquidity providers to bid for lower fees. This measure encourages and rewards blockchain participation.
Accordingly, Ripple Chief Technology Officer David Schwartz disclosed This may become a means for market participants to destroy LP tokens. In addition, the introduction of new AMM features on XRPL can meet the growing demand for automated market makers in the expanding DeFi field.
Unlike traditional trading systems, XRPL’s AMM is designed to synchronize with existing DEXs. This ensures that users get the best of both decentralized and traditional trading environments.
XRP is inherently deflationary
XRP already has an inherent deflationary model, with a maximum supply cap of 100 billion, of which more than 12 million have been destroyed.
Typically, each transaction on the XRPL platform requires a fee in the form of XRP points, which are burned. The purpose of burning these fees is to gradually reduce the supply of XRP over time.
While this process is designed to prevent spam on XRPL, it can also increase the value of the token. This is because it will create long-term scarcity of XRP.
Active XRP community member Lee Harrow, famous The impact of the AMM feature on the total supply of XRP and highlights the possibility of scarcity as the feature will deplete the number of existing XRP tokens.
This makes the already fully created supply of 100 billion even scarcer. Need, scarcity, good stuff. If I follow the logic correctly?
— Lee Harrow (@LeeHarrow2024) April 6, 2024
Panos agrees with this theory, stating that XRP cannot exist in more than 100 billion amounts. With 12 million already gone, the newly launched AMM feature could speed up the process.
XRPScan data reveals incineration process As of April 11, 2024, the number of XRP is 12,313,942.39 XRP. That’s a slight increase from the 11 million recorded in April last year.
