Unveiling XRP Ledger’s Hidden Superpower: The Revolution of Single-Sided Deposits in Decentralized Finance

In an intriguing revelation, Neil Hartner, a senior staff software engineer at Ripple, disclosed a feature of XRP Ledger (XRPL) that could potentially upend the world of decentralized finance (DeFi) as we know it. The feature revolves around single-sided deposits within XRPL’s automated market makers (AMMs), a concept that could significantly lower the barriers to entry in liquidity provision. Nik Bougalis, former director of engineering at Ripple, also chimed in, acknowledging that this was a feature he had been advocating for since its nascent stages.

A Simplified Approach to Liquidity Provision

In a traditional AMM, users usually need to deposit an equal value of two different assets to provide liquidity. This model can be restrictive, especially for individuals who only hold one of the required assets or face regulatory barriers to holding the other. XRPL’s single-sided deposits come as a game-changer here, allowing users to contribute to liquidity pools with just one asset, provided they are authorized to hold it.

The Mechanics of Single-Sided Deposits

Amid the excitement, questions arose about how exactly single-sided deposits work, particularly how they affect the pool’s asset ratio and what kind of fees can be expected.

“Now, if there are any offers on the order book higher than 0.454 then those offers will be matched by the AMM as part of the deposit rebalancing. So you may end up with something different than 11k XRP and 5k XRP in the pool afterward.”
— Neil Hartner (@illneil) September 17, 2023

Hartner clarified that single-sided deposits neither mandate the sale of assets nor necessitate an automatic conversion. Instead, they merely alter the asset ratio and the effective exchange rate within the pool. Any corresponding offers on the order book are automatically balanced by the AMM, making the process incredibly efficient.

Far-Reaching Implications

This innovation has a broader scope than just XRP-centric pools; it is applicable to any liquidity pool within XRPL where a user holds one of the involved assets. By simplifying the process and reducing the need for complicated trustline configurations, this feature enables more people to participate in the DeFi landscape.

Final Thoughts

The introduction of single-sided deposits within XRPL’s AMMs might not only be a revolutionary step for the XRP Ledger but also for the larger DeFi world. It signifies a move towards more inclusive and simplified financial mechanisms. As this feature gets more exposure and adoption, it’s plausible to expect a significant increase in liquidity and participant diversity across decentralized financial platforms.

Disclaimer: The information in this article is for educational purposes only and does not constitute financial advice.

Would you like to learn more? Follow the ongoing discussion and updates on Twitter: Neil Hartner (@illneil)