The XRP Ledger (XRPL) continues to evolve with innovative upgrades, and one of the most impactful recent developments is the introduction of its Automated Market Maker (AMM) feature. While primarily designed to enhance decentralized liquidity, this upgrade carries a powerful secondary effect: it helps burn XRP tokens, reinforcing the asset’s deflationary model.
As decentralized finance (DeFi) grows in complexity and adoption, the XRPL’s integration of AMMs positions it as a competitive player in the blockchain space. But beyond improved trading efficiency and user experience, the AMM functionality introduces a deliberate economic mechanism—permanently removing XRP from circulation—which could influence long-term supply dynamics and value perception.
Understanding How XRPL AMM Burns XRP
At the heart of this deflationary mechanism lies a simple but effective rule: every time a new AMM pool is created on the XRPL, 2 XRP are burned.
This isn’t a standard transaction fee. Instead, it's an elevated cost tied specifically to the AMMCreate transaction type. Unlike regular operations that require only a minimal network fee (as low as 0.00001 XRP), creating an AMM demands a much higher sacrifice—2 XRP—which is permanently destroyed.
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This concept was recently highlighted by Panos Mekras, co-founder of Anodos Finance and a prominent voice in the XRP community. In a widely shared post on X (formerly Twitter), he explained:
"Did you know? When a new AMM pool is created on XRPL, 2 XRP is burned. Instead of the standard minimum transaction cost of 0.00001 XRP, 'AMMCreate' must destroy at least the incremental owner reserve amount, currently 2 XRP."
The purpose behind this design is twofold:
- Prevent spam and abuse of the ledger by making it costly to create unnecessary pools.
- Support scarcity by ensuring each new liquidity pool contributes to reducing the total circulating supply.
This burn mechanism mirrors similar reserve requirements for other ledger objects (like trust lines or offers), but at a significantly higher threshold—underscoring the importance of responsible participation in the ecosystem.
The Bigger Picture: XRPL’s Role in Decentralized Finance
The launch of AMMs on XRPL marks a strategic expansion into DeFi without compromising the network’s core principles—speed, low cost, and energy efficiency. Unlike many blockchains where AMMs operate in isolation, XRPL integrates them directly with its native decentralized exchange (DEX).
This hybrid approach allows users to benefit from both:
- Constant product pools (typical of AMMs) for seamless swaps without order books.
- Order book-based trading for precise price control and advanced strategies.
Moreover, the XRPL AMM includes a fee auction mechanism, enabling liquidity providers to bid for reduced trading fees. This incentivizes active participation and rewards contributors who help maintain deep, stable liquidity.
But here's where it gets even more interesting: not only do liquidity providers earn trading fees, but their actions also indirectly support token scarcity through creation burns and ongoing transaction fees.
Is XRP Truly Deflationary?
Yes—by design. While many cryptocurrencies rely on inflationary issuance models or staking rewards, XRP operates under a fixed supply cap of 100 billion tokens, with no possibility of minting new ones.
More importantly, XRP has been deflationary since day one. Every transaction on the XRPL incurs a small fee that is not redistributed—it is permanently burned. This includes payments, smart contract interactions, and now, AMM creations.
According to data from XRPScan, over 12.3 million XRP have already been burned since the network’s inception. That number was just over 11 million in April 2024, indicating an accelerating burn rate due to increased network activity.
Panos Mekras confirmed this trend in another post:
"Correct. XRP is deflationary by default. No more than 100b will ever exist, and over 12m has already been burned."
With over 193 AMM pools created within just three weeks of the feature going live, the pace of XRP destruction is only expected to grow—especially as more developers and institutions adopt XRPL-based DeFi solutions.
Frequently Asked Questions (FAQ)
Q: How exactly is XRP burned when an AMM is created?
A: When a user submits an AMMCreate transaction, the system requires a reserve of 2 XRP beyond standard fees. This amount is irrevocably destroyed, reducing the total supply.
Q: Can burned XRP ever be recovered?
A: No. Once XRP is burned, it is permanently removed from circulation and cannot be accessed or restored by anyone, including Ripple or validators.
Q: Does every transaction on XRPL burn XRP?
A: Yes. All transactions carry a small network fee (typically 0.00001 XRP) that is burned to prevent spam and secure the network.
Q: How does burning XRP affect its price?
A: While burning doesn't guarantee price increases, it creates scarcity over time. With a fixed supply and decreasing circulation, sustained demand could lead to upward price pressure.
Q: Are there other ways XRP gets burned besides AMMs?
A: Yes. In addition to AMM creation and standard transaction fees, certain smart contract operations and failed transactions may also result in partial or full burns.
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Why This Matters for Investors and Developers
For investors, the growing burn rate adds a compelling narrative around long-term scarcity and value preservation. With fewer than 100 billion XRP ever existing—and millions already gone—the remaining supply becomes increasingly precious as adoption grows.
For developers and liquidity providers, the AMM feature opens up new opportunities for yield generation while contributing to ecosystem health. Each new pool not only improves liquidity but also strengthens the economic model by removing tokens from circulation.
Even small-scale participants play a role: every swap, deposit, or withdrawal involves micro-fees that collectively contribute to the burn pool. Over time, these tiny deductions accumulate into significant reductions in supply.
Final Thoughts
The XRPL’s AMM feature is more than just a DeFi tool—it's an evolution of the network’s economic engine. By combining liquidity innovation with intentional deflation, it reinforces XRP’s position as a uniquely sustainable digital asset.
As adoption grows and more AMMs come online, the cumulative impact of 2 XRP burns per creation could become a measurable force in tightening supply. Combined with everyday transaction burns, this creates a powerful feedback loop: more usage → more fees → more burns → greater scarcity → stronger value proposition.
Whether you're a trader, developer, or long-term holder, understanding these mechanics provides valuable insight into how XRPL isn’t just keeping up with modern blockchain trends—it’s redefining them on its own terms.
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