DEV Community: Aanchal Malhotra

XRPL AMM Technical Features and Updates

Aanchal Malhotra — Thu, 10 Aug 2023 18:18:39 +0000

Last year, the RippleX team proposed the XLS-30d technical specification to build a protocol native automated market maker (AMM) integrated with the order book-based DEX on the XRP Ledger. It has been available on Devnet since November 2022.

Since then, the community has made a lot of progress with testing and development. Hundreds of AMM pools were created on the Devnet and many more wallets were connected to test its functionality. The RippleX team has also added AMM support in three client libraries (xrpl.js, xrpl-py, and xrpl4j) and the xrpl.org explorer.

Proposal Updates

A new amendment proposal is anticipated soon, at which point voting will commence to bring XLS-30d to the XRPL Mainnet. Because of the XRP Ledger’s decentralized nature, no singular authority can make decisions for the network. Every server on the network independently tallies the votes of the validators it is configured to listen to, as part of the consensus process. That being said, in order for the amendment to pass, at least 80% of the validator community has to vote “yes” and that minimum threshold must be maintained for at least two weeks. If both of those conditions are met, then the amendment proposal to bring XLS-30d to Mainnet will be passed.

In the meantime, the RippleX team welcomes developer feedback, bug reports and recommendations to continue improving and iterating on the spec. Extensive testing of the protocol for core XRP Ledger stability continues.

How Developers Can Use XLS-30d

There are two primary use cases for XLS-30d AMM integration: Create new financial applications and integrate into non-financial applications.

Create new financial applications:

XLS-30d is designed as a native protocol of the XRPL, allowing developers to readily integrate with the AMM and create their own front-end trading and liquidity provision interfaces. Because the AMM is baked into the ledger, no heavy lifting is required and developers of all experience levels can easily integrate their apps or create their own that leverage the protocol.
Application developers can create interfaces that serve traders and liquidity providers (LPs), while the protocol handles the most efficient transaction order routing with its integration to the CLOB DEX. It is designed to source and execute an optimized price, whether from the AMM itself or from an orderbook.
XLS-30d introduces a novel continuous auction mechanism that is designed to reduce impermanent loss by incentivizing arbitrageurs to bid for the right to capture price discrepancies. LPs effectively keep more of a pool’s trading fee revenues, while the arbitrageurs are incentivized to continuously bid at near zero trading fees and maintain stable volatility.
- The AMMBid transaction enables arbitrageurs to place a bid for the next auction slot. The revenue from a successful bid transaction is then split between the current slot-holder and the pool, and remaining LP tokens are burned, which effectively increases the LP’s share in the pool.
LP governance is enabled by the AMMVote transaction. Liquidity pool creators unilaterally establish a trading fee, and henceforth the fee becomes a votable parameter by liquidity provider. Using the AMMVote transaction, any LP may submit a vote for trading fees, which are calculated by a continuous weighted average based on stake in the pool. Developers can create the application layer such that all LPs may easily participate in this feature.

Integrate into non-financial applications for user-friendly order flow:

Developers with existing applications on the XRPL can integrate the AMM to enable simple swap functionalities, improve user experience and boost retention. An integration reduces the number of steps in a checkout flow process, whereby a digital transaction can be completed within a single unified application interface.
- Let’s look at NFTs as an example. Say a user wants to buy an NFT that’s listed for 1,000 tokenA but they only have tokenB in their wallet. The AMM can be leveraged to facilitate the exchange by automatically swapping at an optimized transaction price. The user then confirms their transaction to be routed from tokenB to tokenA to the NFT without ever leaving your checkout page.
- In essence, if developers create an application or integration on top of the AMM, a simple interface can be served up to their desired audience, and they will have the ability to enable asset swaps on any application page at the click of a button.
For illiquid tokens, the AMM can enable developers to create liquidity pools instead of tracking an order book. With algorithmic market making, liquidity can be found at every price point and users will have a much easier time accessing and exchanging new or lower liquidity tokens.
XLS-30d also enables single-sided liquidity provision, meaning liquidity providers can then deposit one token into the pool and the algorithm will automatically balance it into a pair. This lowers friction for users by removing the need for them to hold both sides of the pool before participating, and ultimately boosts pool liquidity

How to Get Started

Developers are invited to check out the most up to date technical documentation to learn more, test and provide feedback. You can also search and view transactions and other data via the XRPL Explorer.

All developers are welcome to build integrations and test functionalities on this open-source technology. There is an active discord community where developers can share ideas and ask questions to other XRPL community members.

Fortifying Trust: CertiK Completes Security Audit for XLS-30d

Aanchal Malhotra — Tue, 18 Jul 2023 14:05:19 +0000

In the dynamic world of decentralized finance (DeFi), trust and security are paramount. With the ever-growing number of innovative projects entering the space, users need reassurance that their funds and personal information are protected. To address these concerns, a comprehensive security audit plays a vital role in establishing confidence and verifying the integrity of a project.

We are excited to announce that a recent milestone has been reached in the development of XLS-30d AMM spec for the XRP Ledger. In an effort to prioritize user safety and ensure the robustness of the platform, a rigorous security audit has been conducted by CertiK, a leading blockchain security firm.

The finalized security assessment offers 31 findings of which none were deemed critical or major. The RippleX engineering team has since acknowledged the relevant findings and resolved all but two of the ‘minor’ findings.

CertiK’s extensive DeFi auditing experience and their commitment to industry best practices makes them an ideal choice for assessing the security aspects of XLS-30d. Their team of seasoned security experts has thoroughly analyzed the codebase, identifying potential vulnerabilities and outlining rigorous security measures to safeguard the platform’s functionality.

The audit primarily focused on the following facets:

Reviewing the formulas used in the AMM operations
Ensuring compliance with industry best practices and standards
Verifying that the code behaves as intended and aligns with the XLS-30d specifications
Conducting a meticulous line-by-line code review led by seasoned C++ engineers

Upon the completion of the audit the RippleX engineering team has closely collaborated with CertiK to address the relevant findings. For further information you can refer to the official report.

How Does XLS-30d Work?

The XRPL decentralized exchange (DeX) currently provides liquidity exclusively by manual market making and order books. The XLS-30d proposal adds a non-custodial automated market maker (AMM) as a native feature to the XRPL DeX in a way that facilitates trading via liquidity pools, which token holders can contribute to as liquidity providers to earn a share of the trading fees.

The proposal operates a unique functionality that sees the AMM utilize a continuous auction mechanism. This mechanism incentivizes arbitrageurs to bid for price discrepancies at optimum fees, thus allowing liquidity providers to keep more of the fees earned from a trading pool.

Not Your Typical AMM

While AMMs are typically executed via a smart contract, on the XRP Ledger the AMM operates on the protocol level meaning that it is a core component of the blockchain and does not require a smart contract to function. With the AMM being built as a protocol rather than an application, liquidity is aggregated at the protocol level and is shared with the order book DEX, ensuring better pricing and availability of tokenized assets on the XRPL.

Additionally, there are considerable benefits such as openness and fairness. The rules cannot be altered and apply equally to all participants. Participation is open to anyone as a liquidity provider or trader, with governance and control of a liquidity pool determined by an objective rule set.

Access the AMM Devnet

The AMM is currently live on a devnet and reference documentation can be viewed here.

AMM Development Network access information:

Websocket: wss://amm.devnet.rippletest.net:51233
JSON-RPC: https://amm.devnet.rippletest.net:51234

All developers are welcome to build integrations and test functionalities on this open source technology. There is an active Discord community where developers can share ideas and ask questions to other XRPL community members.

XRPL AMM Network Available for Testing and Development

Aanchal Malhotra — Tue, 29 Nov 2022 19:53:31 +0000

Earlier this year, the RippleX team proposed the XLS-30d technical specification to build a protocol native automated market maker (AMM) integrated with the orderbook-based DEX on the XRP Ledger.

This expansion was proposed to bring additional exchange functionality and utility to XRPL token holders, with the goal of enabling enterprise developers to build high performance applications for their users using the right tools and technical documentation.

Today, the AMM Devnet is live and ready to use, and we invite developers to test the AMM, build innovative applications, and ask questions or provide feedback on Discord. For urgent inquiries, you can contact the development team. Developers can integrate their apps directly with the AMM to power interactions with tokens, trading interfaces, retail experiences and more while taking advantage of liquidity provision, swap and auction features.

Following extensive testing and community feedback, RippleX plans to propose an amendment to adopt XLS-30d to XRPL mainnet. The decentralized XRPL validator community will then carefully review the proposal and evaluate its technical merits. If greater than 80% of the validators accept the proposal—and approval remains at or above 80% for a minimum of two weeks—a functioning AMM protocol as specified in XLS-30d will become live, open source technology on the XRP Ledger.

Understanding XLS-30d

XLS-30d introduces a protocol native AMM to the XRPL. It will exist as a core primitive of the Ledger and employ a set of fixed functions that allow application developers to create interfaces for end traders and liquidity providers (LPs). It also introduces a novel auction mechanism that incentivizes arbitrageurs while reducing the impact of impermanent loss faced by LPs.

Further, the AMM is less vulnerable to Miner Extractable Value (MEV) or front-running because the XRPL leverages Federated Consensus and canonical transaction ordering. The AMM also allows for single-sided liquidity provisioning which simplifies the user experience:

XLS-30d Core Features

Protocol native build:
- As a core primitive of the XRPL, developers can utilize AMM functionality without the need to create their own smart contracts and face associated risks.
Continuous Auction Mechanism:
- The implementation of a continuous auction mechanism requires arbitrageurs to bid to capture price discrepancies.
- The AMM continuously auctions trading advantages for 24-hour periods at near zero trading fees, such that arbitrageurs do not have to wait for profits to exceed fees. This results in immediate arb trading and maintains stable volatility.
- Proceeds from each auction are partially refunded to the prior arbitrage slot holder and partially burnt, effectively reducing impermanent loss.
Single-sided Liquidity Provision:
- Only a single asset is required to contribute to a pool. The protocol swaps on an LP’s behalf to maintain a 1:1 ratio, thus decreasing the number of steps for users.
No Miner Extractable Value (MEV) or front-running:
- The XRPL uses federated consensus, meaning that each ledger (equivalent to a “block”) is determined by a consensus of participants whereby no single party can dictate which transactions or ledgers are valid. There are no miners to prioritize only certain transactions (namely higher gas fee orders) to the Ledger.
- The proposed AMM’s (and existing DEX) orders inherit the core ledger’s canonical transaction ordering determined by the distributed network of validators, thus making it near impossible to front-run transactions.
CLOB DEX Integration:
- The AMM is integrated with the central limit order book (CLOB)-based DEX and enables price optimization to determine whether swapping within a liquidity pool, through the order book, or both provides the best price and executes accordingly.

Why Build an AMM?

An AMM will provide efficient liquidity for a wide range of assets, and allows any participant to engage in market making as a liquidity provider (LP) and earn passive income on their tokenized assets. The XRP Ledger’s inherent advantages—extremely low transaction cost, fast block times, fair transaction ordering—make it very suitable and lucrative for all participants within the AMM ecosystem.

	CLOB	AMM
Trading Structure	Trading happens by matching the incoming orders with those in the traditional on-chain order books of buy and sell offers	Trading happens automatically using pools of available tokens and a predetermined algorithm
Liquidity Supply Structure	Strategic liquidity suppliers actively compete with each other – the costs and benefits of supplying liquidity are individual to each liquidity supplier	Liquidity suppliers pool assets, typically via smart contracts. Benefits and costs are mutualized: Liquidity suppliers are not in competition
Price Impact	Liquidity suppliers choose the price impact that maximizes their profits	The transaction price is determined by the bonding curve and is perfectly predictable given the size of the liquidity pool
Market Makers	Experienced or professional market makers provide liquidity in size	Anyone can play market maker and provide liquidity at smaller increments
User Experience	More complex for end trader	Simple for end trader

How to Get Started

The AMM is currently live on a devnet and reference documentation can be viewed here.

AMM Development Network access information:
Websocket: wss://amm.devnet.rippletest.net:51233
JSON-RPC: http://amm.devnet.rippletest.net:51234

A Proposal for the Future of the XRP Ledger DEX

Aanchal Malhotra — Wed, 13 Jul 2022 21:45:29 +0000

RippleX invites the developer community to provide feedback on its proposal for Automated Market Maker functionality on the XRP Ledger.

With one of the world’s first established decentralized exchanges (DEX), the XRP Ledger (XRPL) enables anyone on the ledger to directly and efficiently buy, sell, or trade any tokenized asset—without the need for a central intermediary.

The XRPL DEX had a first-mover advantage in 2012 as a peer-to-peer exchange. It utilized a central limit order book (CLOB) model that matches bids and offers based on price and time priority. While this is a valuable exchange mechanism in its own right, we believe there is an opportunity to expand upon this feature set to unlock greater functionality and utility via an automated market maker (AMM).

That’s why the RippleX team is proposing native AMM functionality on the XRP Ledger for consideration by its developer community.

What is an AMM?

An AMM is a decentralized exchange protocol that allows users to swap assets using liquidity from pre-funded token pools and an algorithm to determine price. Any user can become a liquidity provider (LP) by contributing tokens to the liquidity pool in exchange for an ownership stake in that pool, represented by “LP tokens.” The AMM charges a spread on trades that change the ratio of tokens in the AMM’s liquidity pools. This trading fee is added to the AMM’s capital pool, further building on the LP token holders’ returns.

The AMM solves for the manual nature of a human-operated CLOB DEX. As a result, AMMs have become a critical part of the decentralized finance (DeFi) ecosystem. Through our proposal to the broader community, we believe this software solution will expand upon the XRP Ledger’s existing order book-based DEX capabilities by incorporating automated market-making.

XRPL AMM Differentiators

While an automated market maker would be a new addition to the XRP Ledger, it is certainly not the first of its kind. Bancor launched the first AMM in 2017, followed by others that ultimately drove AMM-style DEXes to their immense popularity in DeFi today. Despite being a later entrant to the space, the differentiated AMM design proposed here, combined with the performant nature of XRP Ledger, makes this AMM a very compelling addition to decentralized finance.

The most unique feature of the AMM protocol is the novel continuous auction mechanism. It is well-known that impermanent loss, or temporary financial loss that results from token pair prices diverging from the market price post-contribution, is a considerable risk of providing liquidity to an AMM. This protocol includes a unique mechanism where the AMM instance continuously auctions off trading advantages to arbitrageurs—charging them and giving these earnings to its LPs. Doing so allows LPs to partially take a large share of the profits (usually taken by arbitrageurs) to offset the effects of impermanent loss.

Another feature worth highlighting is the AMM’s integration with the CLOB DEX. If one assumes traders want the best price for any given transaction, the algorithm can optimize for that by providing the best of both worlds across both DEX protocols. How? Payment and order placement transactors automatically determine whether swapping within a liquidity pool or through the order book will provide the best price for the user and execute accordingly. Meanwhile, pathfinding considers “paths” with order books and AMMs in various combinations to improve the overall exchange rate.

Finally, this AMM protocol allows for both single-sided and dual-sided liquidity contributions. Most mainstream AMM DEXes require liquidity providers to contribute the equal value of both tokens in a given pool, such as ETH and USDC. This adds friction to the user experience by requiring them to have liquidity available for both assets and often requires them to purchase or swap assets to initiate their position in the pool. By removing this requirement and allowing for single-sided contributions, users can more easily participate in the pool in exchange for a small fee.

Onwards

We are incredibly excited about the potential of this robust feature set in combination with the performant nature of the XRP Ledger. With speeds of up to 1500 transactions per second (TPS) and transaction finality of less than 4 seconds, this AMM protocol differs from others in class.

Developers, we’d love to hear your thoughts on our proposed standard for the XRP Ledger! Head to GitHub to comment and start building today.

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