Ampleforth, A New Form of Money?

in LeoFinance4 years ago

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This was originally posted on my Publish0x Blog as an entry to the Ampleforth Contest, now that the contest is over I can post it here. I won 50 AMPL for it so that was nice.

Ampleforth(AMPL) is a unique crypto-currency that is designed to have a flexible supply rather than a fixed supply like Bitcoin. The protocol is an ERC-20 token built on Etheruem and a single AMPL token is called an Ample. The total number of tokens increases or decreases based on demand, making it either inflationary or deflationary depending on what the market needs at that time. It does this through a process called "rebasing". Anyone who holds AMPL during one of these daily rebasings will either gain or lose tokens but will still have the same percentage of the total supply that they started with. Rebasing is basically the AMPL protocol's equivalent to a central bank raising or lowering interest rates to increase or decrease the money supply. Rebasing is designed to do this without the same problems that interest rate tinkering causes, such as inflation. It is an incentive structure designed to help keep the price of AMPL as stable as possible, with the goal of a price per token in between $0.96 and $1.06, which is equivalent to a +/- 5% range tied to the purchasing power of a 2019 US Dollar. The target price is adjusted for inflation based on the CPI index(Consumer Price Index) so that it will always be equal to what a dollar was worth in 2019, no matter what a dollar is worth today. If the price is within those parameters at rebase time then nothing happens to the total supply. However if the price is below $0.96 then the rebase will decrease the total supply of AMPL tokens. This decrease in supply incentivizes buying because you will be able to buy a larger share of the supply with less money. This also works the other way around, if the price per token is above $1.06 at the rebase time, then the total supply will increase. This will mean profits for AMPL holders that will encourage selling, which in turn will eventually bring the price down back into the target range.

To conceptualize how Ampleforth works, imagine the protocol as a giant see saw. When AMPL is at the price target of a 2019 dollar then the see saw is perfectly balanced. One side of the see saw is demand and the other side is supply. A group of people decide they are sick of fiat currency and they want some AMPLs instead, so the demand side of the seesaw starts to get heavier and heavier. The seesaw starts moving with the increased demand and the price of AMPL goes up. Before the protocol gets too unbalanced it increases the supply of AMPL until some people decide to take profits and sell their AMPL. This selling takes some weight off of the demand side and puts it on the supply side until the see saw balances out again. It doesn't stay balanced for long though, too many people sold their AMPL and now the supply side is heavier then the demand side, and the see saw is unbalanced once again. The protocol kicks in, rebases, and decreases the total supply until AMPL is such a good deal that the demand side gets heavier and heavier. Once again the see saw is balanced. The process continues, back and forth, see sawing from demand to supply and back again. Over time the seesaw should spend more and more time balanced between demand and supply, thus achieving stability without inflation or deflation.

Let's look at AMPL's price over the last ninety days to see how well the protocol has worked recently to maintain stability. According to the Ampleforth website's dashboard at the time of writing, the highest price (in US dollars) in the last 90 days was $1.64, the lowest was $0.79, the average was $1.10, and the median was $1.08. The dashboard states the current price target is $1.023, this means on average the price remained outside the target range for the 90 day period but by less then 10%. The price target is adjusted on a monthly basis when the CPI numbers are released. What if we zoom out further? Over the last year, the high price was $3.75, the low was $0.51, the average was $1.13, and the Median was $1.03. Now I suppose this means the protocol is less stable then its designed to be, but these fluctuations will probably lessen over time if the network continues to grow. The range from high to low for the past year was $3.24 was is quite large for a stablecoin, and I would imagine if you were holding a significant amount of wealth in AMPL that might be scary to watch. However, if you are patient, the protocol always kicks in and brings the price back into the target range. It might not stay there for very long, but it always returns to it which means that eventually you would have a chance to get out if you needed to without a loss, or possibly with a gain especially if you were staking it.

Ampleforth is designed to be a stable coin, but one that avoids the inflationary problems of other stable coins such as tether (USDT) and the deflationary risks of other assets like precious metals. Who wants to lose 2% or more of their purchasing power every year? With traditional savings accounts and bonds not paying nearly enough interest to keep up with inflation, Ampleforth is attempting to create a viable alternative to park your wealth in, with less of the volatility that comes with storing it in other cryptocurrencies. It's unique attributes help make it less correlated to the rest of the crypto market. For example on the 25th of November when Bitcoin corrected, AMPL closed up on the day. Because of this attribute, one of AMPL's many use cases is that it can be used in certain DEFI protocols to minimize liquidation risk. For example if you were to take out a loan backed by a combination of AMPL and ETH(Ethereum), and the ETH has a big correction, the AMPL might maintain enough value to keep the loan's liquidation threshold from being reached during the correction. This theoretically would make the loan less risky for the person taking out the loan because losing your collateral becomes less likely.

Let's not forget you can also stake your AMPL in "geysers" if you wish, and provide liquidity to automated market making platforms such as Uniswap to earn rewards. So not only can you keep your funds relatively stable and safe from inflation but you can earn a ridiculously high APY staking your AMPL. The ETH-AMPL pair on Uniswap pays 63.58% APY currently and the AMPL-USDC pair on Balancer pays an impressive 112.69% APY. To do this however you have to have some exposure to the other side of the pair, but with an AMPL-USDC pair that exposure isn't going to fluctuate in value very much like it would with the ETH pairing. This could be like a super charged savings account if everything continues to work as it's supposed to.

As AMPL grows, it hopefully will become even more stable than it is now, and could become the basis for an entirely new crypto economy. Not controlled by central banks, but still benefiting from the relative stability of central bank currency, AMPL has a lot of potential. Stable coins such as USDC and USDT have their own uses, but the problem is that they are linked to a decaying currency, the US Dollar. So if you hold any you are bleeding money every year due to the inflation caused by exponential growth in the supply of dollars. One missing piece is widespread adoption, and only time will tell if that will come. I believe there is a good chance it may. What if you wanted to protect some profits from a crypto position that has increased in value, but you don't want your profits to be exposed to inflation while you wait for the next buying opportunity. Then you could take your profits and convert them into AMPL and if the protocol works properly than your profits will remain relatively safe over time and you might even make profits on your profits if AMPL's value increases or you stake your AMPL.

Ampleforth was originally created by Evan Kuo, a UC Berkley graduate in computer science and mechanical engineering. He based the design of the protocol on a theoretical currency, the Ducat, created by the economist Fredrich Hayek. The funding to create the Ampleforth foundation came from various places such as Coinbase CEO Brian Armstrong, Pantera Capital, and Huobi. Kuo teamed up with former Google employee Brian Iles and the Hoover Institute to write the whitepaper. The actual token was released through two different initial coin offerings in 2018 and an initial exchange offering in 2019. These offerings raised a total of almost 10 million USD from the sale of about 16 million Amples from the initial supply of 50 million. The network has continued to grow since its release and currently AMPL has a market cap of almost 200 million dollars as of January 10, 2021.

Unfortunately despite the many advantages of AMPL, there are some problems as well, such as the fact that it is not decentralized. It may very well become more decentralized in the future, and that is definitely a goal the developers have, but it isn't there yet. When AMPL was created, the creators included the ability to "pause" the entire network with what could be considered an emergency off switch written into the code. The reasoning behind this was the protocol was still young and they needed a way to protect users in case anything crazy happened. The goal was to eventually remove these off switches and in an August 7, 2020 blog post Brandon Niles stated that "there are no longer any pause abilities in the protocol contracts". Before that, in late September there was a hack of the Kucoin exchange and about 10% of AMPL's circulating supply was stolen from Kucoin's hot wallet. This hack ended up causing quite a bit of controversy, not because of the theft itself, but because of what happened after. Ampleforth announced that it had upgraded its smart contract to freeze the addresses associated with the stolen AMPL so that the attackers couldn't move the tokens. This was not a community based decision, and AMPL was not the only protocol to take such action. The reason this was controversial was if a project was decentralized, they wouldn't be able to freeze the funds of the attacker without consensus from the network participants. Projects such as Synthetix (SNX), Kyber Network (KNC), Maker (MKR), and Chainlink (LINK) that were also among the stolen funds did not take any action against the attacker.
If Ampleforth's creators can just upgrade its smart contract to blacklist any address at any time, then couldn't they be coerced by a government or some other entity to blacklist other addresses? This is most definitely a big problem! On the Ampleforth website's governance section, there is a very important line of text, "System changes are currently controlled by a multisig contract. This will eventually be replaced by generalized voting from token holders". This means that despite the removal of the pause function, the holders of the keys to that multisig contract still have centralized control over the entire network and can continue to freeze or unfreeze Amples at will. On the plus side, this seems to be temporary and it appears AMPL has decentralization in its future. If so than it has the potential to become a unique and powerful stablecoin protocol without the problems of inflation or deflation. I would love to see this happen so that there are more options for people who want to escape the problems of traditional fiat currencies. Only time will tell what will happen with Ampleforth, but it will be exciting to watch no matter what.

Resources






https://www.publish0x.com/cryptohowto/what-makes-ampleforth-ampl-different-xgppeed https://www.coinbureau.com/review/ampleforth-ampl/ https://www.ampleforth.org/ https://www.ampltalk.org/app/forum/technology-development-17/topic/removing-pausability-95/ https://cryptobriefing.com/kucoin-hacker-exposes-decentralization-theater-among-defi-projects/ https://cryptobriefing.com/kucoins-hot-wallet-private-keys-stolen-estimated-150-million-in-damages/

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Looks interesting. Will have a deeper look at it. Thanks for sharing!