Schwartz explained that this AMM mechanism means the fiat value of these memecoins is directly affected by changes in XRP’s price. For instance, if XRP’s price increases by 5% and the exchange rate remains stable, the memecoin’s dollar value also climbs by 5%. This direct correlation ensures that as XRP moves, the liquidity and value of associated memecoins follow suit automatically.
While memecoins generally mirror XRP’s movements, Schwartz noted that they can still experience independent price shifts driven by factors such as community sentiment, speculative trading, or specific project developments. He warned that any rise in XRP’s price might trigger profit-taking in memecoins even if XRP holders themselves hold on to their assets. This profit-taking can add to volatility, leading to unpredictable price swings in the memecoin market.
Schwartz’s analysis underscores the inherent risk and volatility for investors holding memecoins on XRPL. He pointed out that if an investor holds a $50 position in such a token, part of its future value will depend on XRP’s price changes. For those seeking greater risk and volatility, these memecoins offer an intriguing option as they provide exposure to XRP’s movements alongside their own independent dynamics.