Earn Passive Income as a Liquidity Provider

Providing liquidity for an Automated Market Maker (AMM) can be a great way to earn passive income. By depositing assets into an AMM pool, you'll earn a percentage of the trading fees generated. This tutorial shows how to deposit assets, vote on fees, and withdraw assets.

Prerequisites

You should be familiar with basic usage of the xrpl.js client library. See Get Started Using JavaScript for setup steps.
The AMM for the asset pair you want to trade must already exist in the ledger. This tutorial uses an AMM on Testnet which has been set up in advance, connecting the following assets:

Currency Code	Issuer	Notes
XRP	N/A	Testnet XRP is functionally similar to XRP, but holds no real-world value. You can get it for free from a faucet.
TST	`rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd`	A test token pegged to XRP at a rate of approximately 10 XRP per 1 TST. The issuer has existing Offers on the XRP Ledger Testnet to buy and sell these tokens. This token has no transfer fee or Tick Size set.

For instructions on creating an AMM for a different currency pair, see Create an Automated Market Maker.

Source Code

See Code Samples: Add AMM LP for the full source code for this tutorial.

Steps

1. Connect to the network and generate credentials

// Define the network client
const client = new xrpl.Client(WS_URL)
await client.connect()

// Get an address funded with XRP from the Faucet
console.log("Requesting address from the faucet...")
const wallet = (await client.fundWallet()).wallet

// To use an existing account, use code such as the following:
// const wallet = xrpl.Wallet.fromSeed(process.env['USE_SEED'])

2. Acquire TST tokens

// Acquire TST tokens
console.log("------- Acquire TST tokens ---------")

const offer = {
  "TransactionType": "OfferCreate",
  "Account": wallet.address,
  "TakerPays": {
    currency: "TST",
    issuer: "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd",
    value: "5"
  },
  // Drops calculation is (amount to buy * price per token * amm trading fees)
  "TakerGets": xrpl.xrpToDrops(58)
}
  
const prepared_offer = await client.autofill(offer)
console.log("Prepared transaction:", JSON.stringify(prepared_offer, null, 2))
const signed_offer = wallet.sign(prepared_offer)
console.log("Sending OfferCreate transaction...")
const result_offer = await client.submitAndWait(signed_offer.tx_blob)
console.log(result_offer)
if (result_offer.result.meta.TransactionResult == "tesSUCCESS") {
  console.log(`Transaction succeeded:
    https://${EXPLORER}/transactions/${signed_offer.hash}`)
} else {
  throw `Error sending transaction: ${result_offer}`
}

3. Deposit assets to the AMM

You can contribute either one or both assets to an AMM pool. Contributing just one asset can be easier, but incurs a fee that is debited from the LP Tokens paid out. If you contribute both assets in the pool, you aren't charged a fee.

// Deposit assets into AMM
console.log("------- Put more assets into the AMM -------")
  
const ammdeposit = {
  "TransactionType": "AMMDeposit",
  "Asset": {
    currency: "XRP"
  },
  "Asset2": {
    currency: "TST",
    issuer: "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd"
  },
  "Account": wallet.address,
  // Drops calculation is (amount to deposit * price per token)
  "Amount": xrpl.xrpToDrops(25),
  "Amount2": {
    currency: "TST",
    issuer: "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd",
    value: "2.5"
  },
  "Flags": 0x00100000
}

const prepared_deposit = await client.autofill(ammdeposit)
console.log("Prepared transaction:", JSON.stringify(prepared_deposit, null, 2))
const signed_deposit = wallet.sign(prepared_deposit)
console.log(`Sending AMMDeposit transaction ...`)
const lp_deposit = await client.submitAndWait(signed_deposit.tx_blob)
console.log(lp_deposit)

if (lp_deposit.result.meta.TransactionResult == "tesSUCCESS") {
  console.log(`Transaction succeeded:
    https://${EXPLORER}/transactions/${signed_deposit.hash}`)
} else {
  throw `Error sending transaction: ${lp_deposit}`
}

4. Vote on trading fees

This step is optional, but you're encouraged to submit a vote for a fee structure you believe makes sense.

// Vote on fees
console.log("------- Vote for a 0.6% trading fee -------")
  
const ammvote = {
  "TransactionType": "AMMVote",
  "Asset": {
    "currency": "XRP"
  },
  "Asset2": {
    "currency": "TST",
    "issuer": "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd"
  },
  "Account": wallet.address,
  "TradingFee": 600
}

const prepared_vote = await client.autofill(ammvote)
console.log("Prepared transaction:", JSON.stringify(prepared_vote, null, 2))
const signed_vote = wallet.sign(prepared_vote)
console.log(`Sending AMMVote transaction ...`)
const response_vote = await client.submitAndWait(signed_vote.tx_blob)
if (response_vote.result.meta.TransactionResult == "tesSUCCESS") {
  console.log(`Transaction succeeded:
    https://${EXPLORER}/transactions/${signed_vote.hash}`)
} else {
  console.error("Error sending transaction:", response_vote)
}

5. Wait for your LP Tokens to accrue value

This step is optional, but is useful for checking on your LP token values without withdrawing the assets.

// Get LP tokens value
console.log("------- Calculate value of my LP tokens -------")

const lp_deposit_data = lp_deposit.result.meta.AffectedNodes

let LPTokens = null;

for (const node of lp_deposit_data) {
  if (node.CreatedNode) {
    LPTokens = Math.abs(node.CreatedNode.NewFields.Balance.value);
    break;
  }
}

const amm_info = (await client.request({
  "command": "amm_info", 
  "asset": {
    "currency": "XRP"
  },
  "asset2": {
    "currency": "TST",
    "issuer": "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd"
  }
}))

const my_share = LPTokens / amm_info.result.amm.lp_token.value

const my_asset1 = (amm_info.result.amm.amount * my_share) / 1000000
const my_asset2 = amm_info.result.amm.amount2.value * my_share

console.log(`My ${LPTokens} LP tokens are worth:
  XRP: ${my_asset1}
  ${amm_info.result.amm.amount2.currency}: ${my_asset2}`)

6. Withdraw assets from the AMM

Similar to depositing assets, you can withdraw either one or both assets from the AMM pool. Withdrawing a single asset incurs a fee, while withdrawing both does not. When you withdraw by redeeming LP Tokens, you are paid out in both assets.

// Withdraw by redeeming LP tokens
console.log("------- Pull some money out of AMM -------")
  
const ammwithdraw = {
  "TransactionType": "AMMWithdraw",
  "Asset": {
    "currency": "XRP"
  },
  "Asset2": {
    "currency": "TST",
    "issuer": "rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd"
  },
  "Account": wallet.address,
  "LPTokenIn": {
    currency: "039C99CD9AB0B70B32ECDA51EAAE471625608EA2",
    issuer: "rhQWjbT5CQJ2fgHKn6FjRrYbGPKmoS3EhD",
    value: "2940"
  },
  "Flags": 0x00010000
}

const prepared_withdraw = await client.autofill(ammwithdraw)
console.log("Prepared transaction:", JSON.stringify(prepared_withdraw, null, 2))
const signed_withdraw = wallet.sign(prepared_withdraw)
console.log(`Sending AMMWithdraw transaction ...`)
const response_withdraw = await client.submitAndWait(signed_withdraw.tx_blob)

if (response_withdraw.result.meta.TransactionResult == "tesSUCCESS") {
  console.log(`Transaction succeeded:
    https://${EXPLORER}/transactions/${signed_withdraw.hash}`)
} else {
  console.error("Error sending transaction:", response_withdraw)
}