XRPL AMM Explained | How to Earn Passive Income on XRP Ledger

Added: 2026-05-09

[00:00:00]Today, we're going to break down the AMM or the automated market maker XLS-30D and what that could mean for future financial markets and how you can use it to create income.

[00:00:12]So, we've seen automated market makers launched on other networks like Ethereum and Solana. Basically, they just match buy and sell orders across exchanges. If you can envision, a lot of people are familiar with, you know, Sam Bankman-Fried and FTX, but originally how he made his money was he would buy Bitcoin on one exchange, he would send it to another exchange where it was trading at a higher price, and he would sell it there.

[00:00:36]That's how people arbitrage a market, right? So, a market maker is somebody that aggregates all of the buy and sell orders across multiple exchanges or people that provide those services into one centralized location between two things that are being traded and allows you to um basically source buyers and sellers on both of those items. So, let's say it's US dollars versus Bitcoin. A liquidity pool or an AMM would work as a brokerage um and aggregate all of the trading across, you know, all of the different um exchanges that they had access to for USD versus Bitcoin, they would be aggregated there, and then people would be able to buy and sell on that ecosystem. And obviously, that's a pretty liquid ecosystem.

[00:01:27]So, people are willing to buy and sell on um that's not a problem. You're you're going to have people fill orders. The problem comes when you have very illiquid trading between two assets. So, let's say it was as an example, a nascent coin that has just been launched or early-stage ICO, and maybe something else that doesn't have a whole lot of liquidity. Most of the time, they'll tie those into Ethereum or Bitcoin or USD because those are the most liquid markets.

[00:01:55]Um so, that at least one side of the pool does have a lot of liquidity. And then, you know, by proxy, the other side can get some liquidity from the other side.

[00:02:04]Uh, in an automated market maker on the X XRP ledger, it it solves a couple different problems that exist for a traditional market maker.

[00:02:12]Uh, one is the native decks that's built into the network. Um, allows for it to be agnostic. So, you know, any issued assets on the XRPL can be traded within these pools.

[00:02:26]Uh, the X-chain bridge, which we'll talk about later on in another video, um, potentially, you know, allows even things outside of XRP's ecosystem to be traded within these pools at a later date once that's passed. The main friction for a lot of this stuff, if there's not, you know, one side of the pool that already has a ton of liquidity, is the liquidity itself.

[00:02:45]Uh, so with these AMMs, people can use their XRP or another fungible token that's issued on the XRPL to provide liquidity to those ecosystems and earn rewards for doing so. Um, it doesn't really exist in in other, uh, automated market makers, um, on other networks.

[00:03:08]And if it does, it doesn't have the tax advantages that are created on the XRPL. So, in those other ecosystems, like I mentioned earlier, uh, Sam Bankman-Fried would arbitrage Bitcoin, right? People do the same thing. They will buy low and sell high and generating the spread for themselves.

[00:03:29]Uh, here, in these automated market makers, the people that are providing liquidity to the pools actually capture a portion of that. And so, how does that work? Well, there's a fixed number of LP tokens that are initially put in the pool that are represented by the liquidity or the people that have put assets into the pool.

[00:03:49]Uh, and the people that arbitrage these markets have to bid for that opportunity. So, when I spoke to David Schwartz last year, he mentioned that he thought that people would be willing to bid somewhere between 90 and 98% of the profit that they felt that they could earn over the 24-hour period for the opportunity to trade with no fees. So, normally these automated market makers on the XRPL do charge fees for you to trade within those ecosystems and that's variable anywhere from zero all the way to 1,000 basis points of to 1% basically per transaction is what they do charge and that is again is paid out to the people that are providing liquidity to the pool along with what the people bid for those opportunities over the 24 hours to be able to arbitrage the marketplace with no fees.

[00:04:39]So, you know, if if you're making small spreads and that's what's going to be the consequence of, you know, the aggregation of you know, all of these marketplaces into one liquidity pool that are trading between two assets is the the spreads are going to come much tighter.

[00:04:56]And so therefore you're going to need to be able to trade without any fees to really make any meaningful money. So, people will be willing to bid for those opportunities and the amount that they bid would go again back into the pool and those get burned.

[00:05:10]And so as long as you're not taking distributions from the pool in LP tokens your value continues to increase supply and demand, right? So, you still need same amount of liquidity or potentially more depending on the value of the assets. Could be less, you know, if the assets in the pool that are trading decrease in value.

[00:05:29]But if they are going to increase in value you would need more liquidity over time. So, you actually get the appreciation of the assets that you're providing liquidity to along with the arbitrage and then whatever fees are being charged to the participants to be able to trade within that ecosystem. So, three different mechanisms, the underlying fee, which is the the basis points per trade, you're getting the arbitrage or what people are willing to bid to participate in that ecosystem, and then also the appreciation of the underlying assets that are being traded within the pool.

[00:06:04]So, those are the three ways that you'd be able to earn yield if you are providing liquidity to the AMMs on the XRPL.

[00:06:12]It's a huge amendment that's been passed. I think we have like 3 million worth of $3 million worth of XRP locked up in liquidity pools that have been created since the amendment's been passed.

[00:06:25]It took Uniswap months to aggregate that much liquidity into their ecosystem when they launched, but you know, people that hold XRP are willing to experiment and earn yield on their asset, and so we've seen some pretty significant adoption in a short term in a short time period.

[00:06:45]So, excited about it. This is just the first step in DeFi on on the XRPL, and there are, you know, other amendments that we will discuss in other videos that add to this that really create a position where this can be adopted by traditional markets and used at scale. So, hopefully if you didn't really understand why this mattered or how you'd be able to earn income off of it, this answers some of those questions. And if you have further questions, we're happy to answer those as well. Please comment down in the comments below, like, subscribe, and we will see you on the next one.

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