Ripple’s Chief Technology Officer, David Schwartz, Issues Caution to Crypto Users Regarding Potential Risks in AMM Deposits.
Key Points:
– Ripple’s CTO, David Schwartz, warns cryptocurrency users about potential losses when making deposits into Automated Market Makers (AMMs).
– He cautions against single-sided deposits in AMMs that do not have sufficient liquidity relative to the deposit size.
– Schwartz explains that insufficient liquidity can lead to slippage and result in losses during the deposit process.
– He advises users to deposit equal amounts into both assets in AMMs for the safest approach.
– Schwartz also highlights the possibility of losses when investing in highly involved pre-investment AMMs.
– However, he believes that as AMM pools grow and more users trade, the risks will decrease and liquidity will improve.
Ripple’s XRP has made waves in the cryptocurrency world with the introduction of its Automated Market Maker (AMM) feature on its ledger. This significant milestone for the platform has caught the attention of many users. However, David Schwartz, Ripple’s CTO, has taken to a popular platform to issue a warning to cryptocurrency users regarding potential losses when depositing funds into AMMs.
In a recent tweet, Schwartz highlighted the risks associated with single-sided deposits in AMMs that lack sufficient liquidity compared to the size of the deposit. He emphasized that making such deposits could result in losses during the deposit process, also known as “slippage.” This loss is typically indicated by the storage tool used for the transaction.
Schwartz further explained that there is a possibility of incurring losses when investing in highly involved pre-investment AMMs. He stated that such incidents should not be considered rare, as they represent missed opportunities for all parties involved. In these cases, users can recover their investment by unilaterally placing an asset that does not have a pool.
To ensure the safest approach, Schwartz recommended that users consider alternative storage methods if they experience significant declines. He advised users to trade in AMMs and invest equal amounts in both assets. However, he also noted that single-sided deposits in reasonably liquid AMMs should generally be safe. As AMM pools continue to grow and more users trade, Schwartz believes that the risks will decrease, and the liquidity will improve over time.
Schwartz’s warnings serve as a reminder to cryptocurrency users to carefully evaluate AMM fees and balances before making any investments. It is crucial to exercise caution and consider the liquidity and potential risks associated with AMMs to protect one’s funds.