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Stellar To Introduce AMM Functionality, What This Means For Its Ecosystem
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Stellar To Introduce AMM Functionality, What This Means For Its Ecosystem

Reynaldo Marquez
Reynaldo Marquez
3 years ago
3 mins read
Stellar Lumens XLM XLMUSDT

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The Stellar Development Foundation (SDF) will enable an automated market maker (AMM) functionality via Protocol 18. The implementation will take place with a network upgrade, but a specific date is yet to be revealed.

In an official post, the SDF claims that the new functionality will help improved market liquidity. The Stellar Network has been created to aid financial infrastructure to issue assets for cross-border and international payments. Thus, better liquidity will also positively impact its main use case and increase its chances of success. The SDF said:

(…) improving liquidity is an essential part of the 2021 growth plan. The ability to efficiently convert assets is what enables varied use cases and actors to interact with one another on Stellar.

AMMs have been popular in the DeFi sector. Decentralized exchanges such as Uniswap and SushiSwap allow users to exchange tokens, provide liquidity, and receive rewards. The SDF acknowledged that the creation of a liquid market can be a challenge, but this functionality could be a major addition for the ecosystem to grow and become simpler and more accessible for everyone.

Currently, Stellar operates with an order book and a built-in DEX feature, the SDEX. The platform allows users to trade assets on the network with a priority mechanism based on price. Trades are activated automatically and facilitate asset transfer with asset conversion.

Stellar Takes Another Step Towards Global Adoption

Although this model has functioned with success, the SDF believes it presents limitations in terms of liquidity, complexity, and a key component that drives the operation, the market makers. The latter have few incentives to provide liquidity for every asset available on the network.

They usually seek high-volume trades that will yield more profits. With an AMM, developers can create their own build-in feature and use it to provide an alternative source of liquidity. These AMMs would co-exist with the current model if, as the SDF clarified, they are approved by the validators. The foundation said:

AMMs on Stellar have the potential to provide easy-to-access liquidity at scale, especially for new markets and markets currently overlooked by market makers. That’s because asset issuers will no longer need to rely on market makers to stock order books: they can simply create liquidity pools, and allow individual users to provide liquidity by depositing into them.

The SDF has been discussing how to introduce AMMs in the network for many years. The organization and community have been actively discussing different approaches. In the end, the group of protocol designers for the Stellar Network known as the CAP Committee voted to implement proposal CAP-38.

Consider as the easiest implementation for AMMs. This proposal will introduce constant product liquidity pools which will operate similarly to Uniswap, enable users to create liquidity between two assets, store pool share, allow users to deposit and withdraw assets for the pools, and more.

The proposal contemplates a 0.3% fee for transactions with AMMs. However, the SDF claims that all proposals can be review and modified. The CAP Committee will monitor the operations and evaluate if the ecosystem requires additional features.

When Stellar Core v18.0.0 is stable, we will upgrade the testnet so that developers can begin to experiment with sandbox AMMs.  About a month after the testnet upgrade, we will coordinate a date and time for validators to vote on the public network upgrade.

At the time of writing, XLM trades at $0,26 and has followed the general sentiment in the market with a 1.8% and 38.6% loss in the daily and monthly chart, respectively.

Stellar XLM XLMUSDT
XLM on a downtrend in the daily chart. Source: XLMUSDT Tradingview
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Reynaldo Marquez
Reynaldo Marquez

Reynaldo Marquez

A literature major, Reynaldo Márquez has been deeply immersed in the crypto industry since 2017. His journey began with translating articles for various crypto news outlets, a role he took on with zeal. In 2018, amidst a challenging market, he embraced his first writing assignment, demonstrating his unwavering commitment to the nascent industry and the promise of change it bears for many people worldwide.
In March 2021, he joined the prestigious crypto news outlet NewsBTC and Bitcoinist, where he not only reported on the latest crypto news but also had the privilege of interviewing some of the industry's most influential figures. A year later, his dedication and hard work were recognized, and he was promoted to Managing Editor, a position he currently holds with pride.
He believes in honesty, good communication, hard work, and the power of cryptocurrency and its potential to transform people's lives, especially those alienated by the legacy financial system. Born in 1992 in Venezuela, Reynaldo is familiar with how governments and central banks can negatively affect people, their everyday lives, and their futures by creating inflation and erasing their hopes for a better future. Thus, like many Venezuelans, he embraced this new technology to help him and his family navigate difficult times.
In another life, Reynaldo would have pursued a career as an investigator, most likely tracking down the origins of the Cyberpunk movement with the publication of William Gibson’s ‘Neuromancer.’ The intersection between fiction and reality, with the materialization of Bitcoin in 2009, would have allowed him to dive deep into the crypto sphere as something more than a financial phenomenon but also a cultural shift in society that was brewing since the XX century, and maybe even sooner, in the XIX century with the publication of Henry David Thoreau’s ‘Civil Disobedience.’
But that’s for another life. In this one, Reynaldo has been trading to improve his trading skills. Since 2023, he has been trying to learn Python to create successful strategies and find ways to execute them. It is a difficult task, which continues to keep him busy today and will most likely continue to keep him busy in the near and long term.
In his free time, he enjoys lifting heavy objects, reading, watching movies, and listening to his favorite music. Some of his favorite authors are Walt Whitman, William Faulkner, Allen Ginsberg, James Baldwin, Raymond Carver, Ray Bradbury, George Orwell, Mario Vargas Llosa, Reinaldo Arenas, Rafael Cadenas, and many others. Lately, he has been primarily interested in reading about dystopic societies, a topic that deeply resonates with the crypto industry.
Since 2023, he has lived in Spain with his wife. He loves the weather, the food, and the people and their culture. They both expect to travel much more within the country they now call home and beyond its border. He hopes to retire with his wife, maybe in a quiet place near a beach, but most likely in a city close to a library and a university with his kids and, hopefully, grandkids.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

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