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Ripple CTO Clears Up Critical AMM Misconception
In a recent statement, the Chief Technology Officer (CTO) of Ripple, David Schwartz, has shed light on a critical misconception surrounding Automated Market Makers (AMMs). The goal of this clarification is to ensure investors and traders have an accurate understanding of how AMMs operate in decentralized finance.
The CTO highlights that the exchange rate of an AMM is influenced by the pool’s overall balance. In essence, the more assets deposited into an AMM, the better the exchange rate it can offer due to smaller shifts caused by trades. This means that liquidity providers earn passive income from trading fees and enjoy a reduced currency risk due to these fees.
Liquidity providers benefit from redeeming their LP tokens for a portion of the pool’s assets as well as any accumulated fees.
Source: u.today
