The XRP Ledger decentralized exchange is a fully functional exchange engine on the XRPL. It lets users trade any currency to any other currency on the XRPL. This poses a challenge if there are few users willing to trade an uncommon currency pair. Centralized exchanges usually determine fixed pairs due to liquidity constraints. On the XRPL, there is an elegant mechanism that utilizes XRP to make uncommon trades possible.
Auto-bridging is a native feature of the XRPL decentralized exchange (DEX). The DEX lets users create offers (trade orders) with any currency pair that exists on the network (any-to-any trading). This is uncommon on centralized exchanges as it is hard to create liquidity on all markets that can potentially exist. The same can be said for the XRPL DEX but Auto-Bridging can make trades between uncommon pairs possible by using XRP as an intermediary currency.
How does it work?
Most XRP pairs are active and have sufficient liquidity to make trades of reasonable value. If someone wants to trade an uncommon pair like GateHub ETH to GateHub LTC, auto-bridging can make it happen by using XRP as an intermediary currency. ETH is sold for XRP on the ETH/XRP market and the XRP is used to buy LTC on the LTC/XRP market. This happens automatically and the user does not need to specify any parameters for this to happen.
Another neat consequence of this is that it is possible to display “bridge” orders on non-XRP markets. This makes it possible to utilize the liquidity on multiple markets for trading on a specific market that could otherwise appear dead. The orderbook is populated by bridge offers which lets you see the actual liquidity available to you on a given market.
We talked about pathfinding and other great features of the XRPL in more detail here.
Auto-bridging can also be used to automatically make payments over so-called paths. Payments do not use auto-bridging automatically.
On GateHub, trading utilizes this feature to the fullest so you are more likely to find a competitive price on your selected currency pair. Paths are also available on GateHub for all XRPL wallet payments and withdrawals.