The XRP Ledger has taken a step further in maintaining a deflationary model for XRP by introducing an Automated Market Maker (AMM). Although this feature was primarily introduced to provide liquidity, it also has a built-in token burn functionality.
The AMM feature will help to incinerate XRP tokens once users create new AMM accounts. Such burn functionality will help preserve XRP’s long-term value by promoting scarcity.
XRPL AMM Feature Incinerates XRP Tokens
Amid several community discussions about the new feature, prominent crypto personality Panos Mekras took to X to explain how the token burn model works. Mekras, who is also a co-founder of Anodos Finance, noted that the AMM feature helps maintain XRP’s inherent deflationary nature.
Did you know? When a new AMM pool is created on XRPL, 2 XRP is burned.
Instead of the standard minimum transaction cost of 0.00001 XRP, “AMMCreate” must destroy at least the incremental owner reserve amount, currently 2 XRP. This is the same special transaction cost as…
— Panos 🔼{X} (@panosmek) April 6, 2024
He said the XRPL feature automatically burns 2 XRP tokens for every newly created AMM, and its incineration rate is higher than the previous standard transaction costs.
A small fraction of the XRP token is burned to send a transaction on the XRP Ledger. This protects the ledger from spam. However, with the new AMM, two XRP coins will be burned per account created. Panos noted that the AMM feature could burn an average of 2,500 XRP daily.
Also, the AMM feature has a fee auction mechanism that allows liquidity providers to bid for fee reductions. This measure encourages and rewards participation on the blockchain.
Accordingly, Ripple CTO David Schwartz disclosed that this could become a means of burning LP tokens for market participants. Moreover, introducing the new AMM feature on the XRPL satisfies the growing demand for Automated Market Makers in the expanding DeFi landscape.
Unlike conventional trading systems, XRPL’s AMMs are created to synchronize with the existing DEX. This ensures that users get the best decentralized and traditional trading environments.
XRP’s Inherent Deflationary Status
Already, XRP has an inherent deflationary model with a capped maximum supply of 100 billion coins with more than 12 million already burned.
Usually, every transaction on the XRPL platform requires a fee in the form of fractions of XRP, which is burned. The aim of burning these fees is to gradually reduce the supply of XRP over time.
While the process aims to prevent spam on the XRPL, it can also boost the token’s value. That’s because it can create a long-term scarcity of XRP.
An active XRP community member, Lee Harrow, noted the impact of the AMM feature on the total XRP supply and highlighted the possibility of scarcity since the feature will deplete the number of existing XRP tokens.
This creates more scarcity with a supply that is already fully created, 100 billion. Demand, scarcity, good things. If I follow the logic correctly?
— Lee Harrow (@LeeHarrow2024) April 6, 2024
Panos concurred with this theory, noting that no more than 100 billion XRP can exist. With 12 million already gone, the newly launched AMM feature could accelerate the process.
Data from XRPScan revealed the incineration of 12,313,942.39 XRP as of April 11, 2024. That’s a mild increase from the 11 million recorded as of April last year.
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