Jai Sahu
Story Highlights
- Ripple’s technical lead alerts users to the risks of Automated Market Maker (AMM) deposits, advising caution.
- It’s recommended that users equally fund both assets in AMMs for a safer investment strategy.
- Schwartz discusses how trading issues arise when AMM liquidity doesn’t match deposit amounts.
Ripple’s digital currency, XRP, is introducing an exciting development: Automated Market Makers (AMMs), bringing attention to the platform. While this innovation is welcomed, experts recommend proceeding with caution amidst the enthusiasm.
Explore what AMMs bring to XRP and the strategies to mitigate potential risks.
David Schwartz’s Warning
At this pivotal moment, David Schwartz, the Chief Technical Officer (CTO) at Ripple, is advising the crypto community on the risks associated with AMMs through various channels.
Schwartz recently tweeted about the perils of making deposits to AMMs on one side, particularly when these deposits are smaller than the investment size.
CAUTION: If you make a single-sided deposit into an AMM that doesn't have significantly more liquidity than the size of your deposit, you will take a loss in the deposit process.
Whatever tool you're using typically warns you about this loss as a report of "slippage". If you see…
— David "JoelKatz" Schwartz (@JoelKatz) March 23, 2024
He detailed that such actions could result in financial losses, a situation often exacerbated by “slippage,” as indicated by monitoring tools.
Moreover, Schwartz warned about the dangers of engaging in AMMs before investing heavily, asserting the significance of these incidents as they denote lost opportunities for everyone involved.
He also suggested a workaround for users facing such predicaments, allowing them to restore their investment by singularly contributing an asset to an underfunded pool.
Safety Tips
Schwartz emphasizes the importance of caution and exploring other investment avenues during downturns. In AMM dealings, he advises investing identical sums in both assets to lower risks.
Nevertheless, he mentioned that investments on one side in AMMs with sufficient liquidity are usually secure. With the growth of AMM pools and the increase in trading activities, Schwartz expects a reduction in risks, foreseeing pools better managing to even out and thus enhancing liquidity over time.
Schwartz’s cautionary advice reminds crypto users to carefully review AMM fees and the state of balances prior to investing.