The XRP Ledger (XRPL) is entering a transformative phase with the recent rollout of its Automated Market Maker (AMM) feature—a development that not only strengthens the network’s decentralized finance (DeFi) capabilities but also accelerates the deflationary trajectory of the XRP token. By integrating a built-in mechanism that burns XRP during AMM creation, the XRPL is reinforcing scarcity, enhancing liquidity, and fortifying its long-term value proposition.
This innovation marks a pivotal evolution in how blockchain ecosystems manage supply dynamics and user incentives. Unlike inflationary models that dilute value over time, XRPL’s approach aligns with growing market demand for assets with predictable, shrinking supplies—positioning XRP as a compelling player in the next generation of digital assets.
The Mechanics Behind XRP’s Deflationary Design
At the heart of XRPL’s updated architecture lies a simple yet powerful rule: creating a new AMM instance requires the permanent burning of 2 XRP tokens. This cost far exceeds the standard transaction fee of 0.00001 XRP and serves a dual purpose—deterring spam activity and reducing the total circulating supply.
👉 Discover how leading blockchains are leveraging token burns to boost scarcity and user trust.
Each time a liquidity pool is deployed on the XRPL network, those 2 XRP are irreversibly removed from circulation. Given that over 193 AMMs were created within just three weeks of the feature’s launch, this mechanism has already triggered the removal of hundreds of XRP from the market—adding tangible momentum to its deflationary model.
This isn’t the first time XRP has embraced burn mechanics. Since the inception of the XRPL, transaction fees have been systematically destroyed rather than redistributed. To date, more than 12 million XRP tokens have been burned through routine operations alone. With the AMM upgrade, this process is now being amplified by intentional economic design.
Why Scarcity Matters in Crypto Economics
Scarcity is a foundational principle in value creation—whether in gold, real estate, or digital assets. For cryptocurrencies, where supply schedules are transparent and immutable, predictable scarcity can significantly influence investor sentiment and long-term holding behavior.
XRP’s total supply was capped at 100 billion tokens at genesis, with no possibility of future minting. Unlike some protocols that inflate supply to reward validators or developers, XRPL relies on burning to shape its monetary policy. As usage increases—more transactions, more AMM deployments—the rate of token destruction also rises.
Panos Mekras, co-founder of Anodos Finance and an active voice in the XRP community, emphasized this point on social media:
“Creating each AMM burns 2 XRP. That’s not just a fee—it’s a deliberate act of scarcity engineering.”
Community members like Lee Harrow have echoed this sentiment, noting that increased demand combined with a fixed and gradually shrinking supply creates favorable conditions for value appreciation.
Expanding DeFi on XRPL: Liquidity Meets Innovation
The introduction of AMMs represents more than a deflationary tool—it's a cornerstone in XRPL’s ambition to become a robust DeFi hub. Traditionally, decentralized exchanges rely on order books where buyers and sellers must match. AMMs replace this model with algorithmically managed liquidity pools, enabling seamless trading without intermediaries.
By adopting this model, XRPL empowers developers and users to create custom trading pairs, provide liquidity, and earn fees—all while contributing to network security through economic disincentives for spam.
This shift enhances user experience by:
- Reducing reliance on centralized exchanges
- Enabling permissionless liquidity provision
- Increasing transaction efficiency
- Supporting cross-asset swaps directly on-ledger
As more participants join the ecosystem, both liquidity depth and burn velocity increase—a virtuous cycle that benefits all stakeholders.
Critical Update for Node Operators: Security First
With any major protocol upgrade comes operational responsibility. RippleX, Ripple’s developer division, has issued an urgent call for all XRPL node operators to upgrade to version 2.1.1 of the reference server implementation.
This update addresses a critical vulnerability known as fixAMMOverflowOffer, which could potentially allow exploiters to manipulate offer handling within AMM pools. If left unpatched, affected nodes risk falling out of consensus or facing service disruptions once the amendment activates.
The activation timeline is firm: the fix goes live early Thursday morning UTC. Node operators who fail to update may face amendment blocking, effectively isolating their nodes from the broader network until compliance is achieved.
David Schwartz, Ripple’s Chief Technology Officer, described the patch as a “significant moment” for XRPL, underscoring its importance for maintaining trust and stability in an increasingly complex DeFi environment.
“Security isn’t optional,” Schwartz stated. “As we enable more sophisticated financial tools on XRPL, we must ensure every layer of the stack is resilient.”
Looking Ahead: What This Means for XRP Holders
For investors and long-term holders, these developments signal a maturing ecosystem—one where utility, security, and economic design converge.
Key implications include:
- Accelerated token burn rate due to rising AMM adoption
- Stronger network security via mandatory node upgrades
- Greater DeFi functionality attracting developers and users
- Increased scarcity pressure on a fixed 100B supply
As XRPL continues to evolve beyond payments into broader financial infrastructure, the role of XRP shifts from mere transactional fuel to a deflationary asset embedded in the fabric of decentralized applications.
Frequently Asked Questions (FAQ)
Q: How exactly is XRP burned on the XRPL?
A: XRP is burned in two primary ways—through transaction fees (a tiny amount per transaction) and through specific high-impact actions like creating an AMM pool, which destroys 2 XRP per instance.
Q: Can burned XRP ever be recovered?
A: No. Once XRP is burned, it is permanently removed from circulation and cannot be restored or accessed by any party.
Q: Does burning XRP increase its price?
A: While burning reduces supply and increases scarcity, price is ultimately determined by market demand. However, sustained burns can create bullish pressure over time when paired with growing adoption.
Q: Why do AMM creations require burning 2 XRP instead of less?
A: The elevated cost acts as an anti-spam measure while also incentivizing meaningful participation. It prevents malicious actors from flooding the network with unnecessary pools.
Q: Is XRPL becoming a competitor to Ethereum in DeFi?
A: XRPL isn’t aiming to replicate Ethereum entirely but offers a faster, lower-cost alternative for specific DeFi use cases—especially around payments, stablecoins, and efficient swaps.
Q: How can I participate in XRPL’s DeFi ecosystem?
A: You can provide liquidity to AMM pools, trade assets directly on-chain, or develop dApps using XRPL’s open-source tools and APIs.
The integration of AMM functionality into XRPL represents more than a technical upgrade—it's a strategic repositioning of XRP as a deflationary asset anchored in real utility. As adoption grows and burns accumulate, the interplay between scarcity, security, and innovation will define the next chapter for Ripple and its global community.