Ampleforth: The Future of Money?

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What is Ampleforth?

Ampleforth is a revolutionary cryptocurrency project which aims to build an adaptive base money powered by the AMPL token, an ERC20 token running on top of Ethereum.

Grossly speaking, AMPL provides diversification to your portfolio of crypto investments thanks to its low correlation to other crypto assets and aims to be used as a collateral for DeFi needs (when it reaches lower price volatility obviously).

Long term, it aims to be a new kind of algorithmically adjusted stablecoin which targets a stable price range and takes into account US inflation.

AMPL is unique thanks to a mechanism of daily adjusting supply based on weighted average price of AMPL.

Unlike other cryptocurrencies where the priceis the only variable to take into account to value the token, the supply of AMPL is the key metric to watch.

AMPL is also non dilutive, meaning if you bought 1% of supply today and you hold for 2 years you will still have 1% of supply. This is different from the many Proof of Stake shitcoinswhich do nothing and have no use cases other than promising absurd return of +30% where PoS is required to secure the network and supply inflates daily.

How does it work?

To sum up, AMPL targets a price rangebetween $0.96 and $1.06. If the price is not in that range, the protocol rebases the supply (the supply is increased or decreased). The rebase is done on a daily basis at 02:00 UTC.

Every holder is impacted by the rebase, there is no way you can escape the rebase whether holding your coins on a centralised exchange, in Metamask or in a Ledger.

The protocol will (magically) adjust your supply based on the daily weighted average price of AMPL of the last 24 hours each day such as:

  • If the price is higher than $1.06, the AMPL supply increases, all AMPL holders get extra AMPL magically (or almost).

  • If the price is lower than $0.96, the AMPL supply decreases, all AMPL holders lose some of their tokens.

Remember even if your supply of AMPL increases or decreases you keep the same % of the supply. You will never be diluted with rebases.

Bonus point: inflation

Ampleforth also takes into account US inflation. AMPL is adjusted for inflation:

  • $1 of today will be worth $1 in two years in real terms, meaning that it takes into account inflation to make sure that your purchasing power stays the same over time in real terms. Other stablecoins target nominal terms, they do not take into account dollar inflation (Tether, USDC, etc).

  • It is currently not a big deal at all for two reasons: AMPL is not stable at the moment and US inflation is very lowbut with the monetary experiments currently done by the FED, it could change in the future.

This part does not aim to explain in details how the protocol works. If you want a detailed explanation, we do suggest to read the AMPL red book, here.

AMPL is not a ponzi

I have seen hundreds of tweets from noobs affirming Ampleforth is a Ponzi schemebecause of the positive rebase and bla-bla-bla. Even Shitcoin Minimalist is calling it a Ponzi.

Guys, are you serious?

Let’s take a look at the definition of Ponzi scheme.

What is a Ponzi?

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

Ponzi schemes share similar characteristics and promises such as:

  • High investment returns with little or no risk: cryptocurrency projects offer high return but also comes with high risk. Ampleforth is not different. There is no mention of high investment return on their website. AMPL is a speculative token like BTC or ETH.

  • Overly consistent return: without comment.

  • Secretive or complex strategies: There are no such strategies. Everything is explained in Ampleforth Whitepaper and website. Maybe the AMPL mechanism of daily supply adjustments is unfamiliar for many crypto nerds but there is nothing secretive about it.

  • Difficulty receiving payments: You buy and sell AMPL like any other tokens on Uniswap or on centralised exchanges. BTW, AMPL-ETH Uniswap pool is still the biggest.

Now you tell me, does it sound like Ampleforth at all? No.

Because you do not understand how it works does not mean it is a Ponzi scheme.

Side note: Do you even believe Brian Armstrong and other VCs are dumb enough to invest in a Ponzi?

The case for a multi billions market cap

Ampleforth has a market cap of $250M USDwith a supply of 336M AMPL at a price of $0.73.

The diversification use case

Currently, AMPL has a good value proposition; low correlation to other crypto assets. Unlike the hundreds of shitcoins out there, which follow more or less explicitly Bitcoin price movements, AMPL works differently thanks to its adjusting supply mechanism. So AMPL already has a use case for crypto portfolio managers; diversification and so lower risk of their portfolio.

Diversification use case is nice but not enoughto become a multi billion dollar token though.

The speculative (and usability) use case

Ampleforth brings in with its AMPL token, a major innovation to the crypto space; a dynamically adjusted supply, which aims to be used as a stablecoin in the long term.

Obviously, crypto innovation started with Bitcoin and the scarcity and alternative to the collapsing traditional financial system proposition. Then the second major innovation came with Ethereum and the release of smart contracts. The third major innovation was the creation of stablecoins.

Ampleforth brings the fourth major innovation: a dynamically adjusting supply token which keeps its speculation aspect intact and at the same time aims to provide the same usability as stablecoins.

Crypto is about two things: speculation and usability.

On one handBitcoin and Ethereum are good vehicles to speculate but not useful to pay for goods due to their speculative nature and so high volatility. They will never be stable even in the long term. That is not their end goal and it is fine.

On the other handstablecoins are useful as they should be worth one US dollar at all time, meaning they can be used to pay for goods pretty easily. But they have no speculative use case.

What is the point? AMPL combines bothspeculation and usability.

Indeed, the price can fluctuate freely based on supply and demand like other non stable crypto. Even if the supply is adjusted daily with a positive or negative rebase, the price can move outside the target range.

It means that if there is a huge demand for AMPL, the price will stay higher than $1.06 leading to a supply expansion (more AMPL will be minted). When people speculates that AMPL will be worth more in the future, the market cap expands thanks to the positive rebases.

Why would people speculate that AMPL can be worth more than $250M? 

The speculative case can be explained by the unique feature of AMPL: targeting a dynamically adjusted stablecoin in the long term with a real use case: use AMPL to pay for goods and as a collateral for DeFi.

Imagine you hold Bitcoin for its scarcity and as a hedge on the global financial system about to collapse and at the same time you could use it to pay for goods without the opportunity cost to sell it too early (remember the Pizza guy?). Imagine this project is worth around $250M USD today. Wouldn't you bet some money on it at that market cap?

What if it succeeds as a stablecoin in the long term?

You have to imagine that currently AMPL is still small ($250M market cap) and experiences high volatility due to short term traders buying and selling to profit from short term inefficiencies around rebase events. As a result, AMPL is highly volatile.

But as AMPL grows, we do expect to see a lower volatility going forward because the AMPL system will become more resilient and stronger each time the system does not break. Arbitrage traders will also emerge and contribute to a lower volatility going forward. As a result negative and positive rebates will become more and more small, which will lead AMPL to stay in the price target range. The foundation could also put in place incentives to decrease price volatility.

To achieve stability, liquidity is another very important factor for the success of AMPL. Indeed a higher liquidity and lower spread result in lower price discrepancies, which supports AMPL stability. For your interest, AMPL-ETH Uniswap liquidity pool is the biggest thanks to the Geyser initiative. Ampleforth team adds some sweetener if you provide liquidity in the Uniswap pool on top of the fees received.

Once it achieves relative stability and stays in the defined range, AMPL could be used effectively for payments.

Along the way, AMPL can be used as another form of collateral not correlated to other “traditional” crypto assets. In the forthcoming future, we could imagine a basket of collateral where AMPL is coupled with ETH or BTC thanks to its low correlation properties to lower the liquidation risk to mint DAI, for example.

We do not know where AMPL can go but we do believe it is much higher than the previous all time high.

Risks

AMPL, by its nature is very risky and is in uncharted territory and could fail. Indeed, if the protocol cannot bootstrap itself thanks to high demand for speculation in the first place, it will only stay useful as a diversification asset for crypto portfolio managers and no more, not useful for collateral and it will never reach the status of stablecoin if it stays this small.

Recently, there was a paper saying stablecoinsshould be stopped because they threaten the stability of the traditional financial system. AMPL could be impacted as well.

Rather sooner than later, regulation will kick in and AMPL will have to follow the rules imposed by the US authorities.

Obviously, it is worth mentioning that AMPL relies on smart contracts so a hack is always possible even if the code has been audited by well known auditors. That risk has to be taken into account when investing in DeFi protocols, always.

Conclusion

Ampleforth is definitely a project to keep an eye on.

AMPL brings a revolutionary non dilutivetoken which adjusts its supply automatically and targets a price range. It aims to combine the speculation aspect of Bitcoin and the usability of USDC and DAI.

It already has a proven use case: provide portfolio diversification for crypto funds thanks to its low correlation or uncorrelation to other crypto assets.

We do expect to see it being used as collateral for the DeFi ecosystem rather sooner than later.

In the long term, AMPL could be worth billions of USD if it achieves the stablecoin status when price becomes relatively stable.

In the short term, we do expect AMPL to be listed on major exchanges such as Coinbase and Binance. This eventual listing should propel the next supply expansion cycle for AMPL.

Thanks for reading

Secret Salsa

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