The XRPL’s Automated Market Maker (AMM) is unique in the sense that it is integrated directly into the blockchain network itself. This means that front-end interfaces are required to interact with it.
Orchestra Finance is the first front end for the XRPL AMM, a critical feat as the AMM has been in development for years and is nearing its mainnet debut.
In this article, I’ll cover how the XRPL’s AMM works, and why Orchestra’s front-end AMM is significant to progress in this space.
DeFi – A Quick Primer
Blockchains like Ethereum have decentralized exchanges (DEXs) that execute trades, using algorithms to establish asset prices. DEXs relying upon this algorithmic pricing are known as Automated Market Makers (AMMs), and they’re quite popular with over 1,000+ in existence.
An AMM is one of the most integral DeFi components of a blockchain network, enabling users to trade in a permissionless manner. That being said, having so many DEXs fragments liquidity, as each DEX has a separate liquidity pool for each asset pair. For example, each DEX would have a separate USDC/ETH pool that requires liquidity. Where does this liquidity come from? Users provide it, known as “liquidity providers”.
The XRPL is unique in that its AMM is built into the network itself, with only a single liquidity pool for each asset pair. This contrasts with typical blockchains that have many different liquidity pools, fragmenting liquidity.
Given that it’s built into the network itself, users need an easy-to-use interface, which Orchesta Finance provides.
Orchestra Finance is a notable project aiming to provide an easy-to-use interface for XRPL interactions, though it’s not the sole endeavor in this space.
Let’s take a closer look.
Orchestra Finance
Orchestra provides users with easy access to AMM functionality.
This includes:
- Swaps: Trade any XRPL asset from a simple interface.
- Liquidity Provision: Provide liquidity to any pools.
- Fee Voting: A form of governance, whereby liquidity providers (LPs) can vote on the transaction fee for any given liquidity pool. Typically, only the top 8 LPs have their votes counted, but if one of the fails to vote, other user votes are counted as well.
And since AMM on XRPL is built into the chain itself, it doesn’t matter if you’ve added liquidity somewhere else – you can see it on the Orchestra Finance website.
They’ve also integrated the XRPL’s Continuous Auction mechanism, a feature that I covered here. It enables parties to bid for the right to trade at very low fees for 24 hours, with the winning bids (of each liquidity pool) compensating liquidity providers and counteracting impermanent loss. This is useful for arbitrageurs, as they do high-frequency trading and therefore benefit from near-zero trading fees.
What about the team?
It’s comprised of 9 anonymous developers with Legato leading the charge.
They currently support both Crossmark and Gem, with plans to support Xumm, Ledger, D’Cent, and WalletConnect shortly.
Other Projects
A few other projects are building out AMM interfaces as well:
- Anodos Finance: Building various XRPL apps and tools, including a trading, liquidity provision, and portfolio management platform for the XRPL’s AMM.
- Sologenic: A community-driven ecosystem with various products such as an asset tokenization platform, a decentralized exchange, and CBDC solutions. They’re also building a UI for the AMM.
- XP Market: A platform for accessing all that the XRPL has to offer, including DeFi and NFTs.
I suspect that projects will differentiate through their user experience and the amount of products offered in a single platform.
Conclusion
Orchestra Finance, the front end for XRPL’s Automated Market Maker (AMM), offers users a seamless interface for trading, liquidity provision, and fee voting. With the AMM’s impending mainnet launch, users holding assets on XRPL will soon have the opportunity to deposit them into liquidity pools and earn a share of trading fees, though understanding the associated risks is essential.
Orchestra’s integration of AMM features, including continuous auction mechanisms and protocol-wide liquidity, signifies a significant step forward in XRPL’s DeFi ecosystem.
Interested in learning more about the XRPL or getting started?
If so, book a call with me and let’s chat!
