Ampleforth: An Algorithmic Rebase Cryptocurrency
Is it possible for a cryptocurrency to be both elastic and stable at the same time? Discover how Ampleforth is breaking new territory in the blockchain space.
While asset-backed and crypto-collateralized stablecoins are an important part of the digital economy, algorithmically driven assets such as Ampleforth are taking a more decentralized approach that is less influenced by traditional financial procedures.
With a flexible supply, Ampleforth’s AMPL currency promotes price stability. It achieves this via a process of rebasing , in which the quantity of AMPL is adjusted on a daily basis, offering better price stability than fixed-supply cryptocurrencies.
- Is AMPL a Stablecoin?
- The Ampleforth Stable Monetary Policy
- The Three States of AMPL
- Ampleforth Protocol Stable Contracts
- Ampleforth vs. Stablecoins
- Ampleforth Use Cases
Is AMPL a Stablecoin?
Stablecoins are a type of crypto asset that is designed to keep its value constant. Most commonly, this refers to cryptocurrencies designed to maintain parity with the US dollar or another fiat currency, but it can also refer to cryptocurrencies designed to maintain a more general level of stability.
The mechanisms utilized to maintain price stability in the stablecoin ecosystem differ. Stablecoins such as the US Dollar Coin (USDC) and the Gemini Dollar (GUSD) are backed by audited US dollar assets. Another sort of asset-backed stablecoin is PAX Gold (PAXG), which symbolizes physical commodities, in this case, gold.
Crypto-backed stablecoins like DAI, on the other hand, use collateralization to ensure price stability, in which users deposit crypto assets as collateral and receive DAI in return.
Algorithmic stablecoins are an emerging sub-sector of stablecoin protocols that achieve price stability via techniques that automatically adapt for supply and demand, in addition to asset-backed and crypto-collateralized stablecoins.
Ampleforth (AMPL) is comparable to algorithmic stablecoin protocols that operate on the Ethereum blockchain, but it is not tied to the US dollar. Instead of utilizing crypto, cash, or commodities as collateral, the Ampleforth protocol adjusts the AMPL coin supply every 24 hours in a process known as “rebasing” to keep the price consistent.
An examination of traditional monetary policy is a good place to start to understand how algorithmic protocols like Ampleforth work.
The Ampleforth Stable Monetary Policy
A central bank is used by every country to oversee its economic health. To do this, central banks use fiscal and monetary policy levers to reduce the impact of economic cycles. Fiscal policy, in general, relates to government spending and tax policies. Monetary policy, on the other hand, refers to the operations of the central bank in determining borrowing prices and the money supply.
In the absence of government expenditure and taxation in the decentralized environment, algorithmic stablecoins are guided by monetary policy.
Depending on demand, the traditional monetary policy permits governments to produce additional fiat currency or withdraw it from circulation. Unlike conventional currency, which has an elastic supply, many cryptocurrencies, such as bitcoin, have a fixed supply, making them inelastic. Although inelastic supply has advantages, the accompanying price volatility might be detrimental.
On the other hand, an elastic money supply can lead to dilution and value loss.
When additional money is printed and circulated, it dilutes the proportion of the total quantity of dollars possessed by an entity, effectively lowering the value of each unit of currency.
Because it is both elastic and non-dilutive, Ampleforth’s stablecoin AMPL overcomes these problems. It attempts to keep its value at $1 by dynamically altering its supply on a regular basis. The Ampleforth crypto protocol accomplishes this by adjusting supply among all wallet holders’ balances. Three scenarios on the Ampleforth crypto platform cause supply modifications to the AMPL currency.
The Three States of AMPL
Although algorithmic stablecoins use supply-regulating mechanisms, Ampleforth is unique in that its overall supply stays elastic. As a result, AMPL token ownership is never diluted, resulting in an Ampleforth stablecoin supply that exists in three states:
- Expanding Supply: If the price of AMPL exceeds $1, more tokens are released into the economy, decreasing the value of each token.
- Contracting Supply: If the price of AMPL falls below $1, tokens are taken out of circulation to increase each token’s value.
- Equilibrium: In a state of equilibrium, the economy is in balance, and the price of 1 AMPL is exactly $1.
Every day at 2:00 UTC, anybody who possesses AMPL tokens will see their wallet balance alter in reaction to the state of the Ampleforth economy and the current token price.
The protocol employs Chainlink, an Ethereum-based blockchain oracle data provider, to evaluate whether token supply adjustments are required. It’s worth noting that Ampleforth’s algorithmic token supply management is a new technology, and its market price has fluctuated over time, going as low as $0.31 in 2019 and reaching as high as $3.99 in 2020.
Ampleforth Protocol Stable Contracts
Rebases are AMPL’s daily supply adjustments, which are controlled by smart contracts. The Ampleforth network is suited for use in stable contracts because it maintains supply elasticity and safeguards against dilution to stabilize AMPL’s value.
Stable contracts, according to the site, are those that are denominated in a crypto asset with a predictable value.
Consider the following scenario: two parties agree to sign a work agreement that calls for the transfer of one bitcoin (BTC) at the conclusion of a project in two weeks. The market value of BTC will be more volatile than the AMPL crypto-asset due to its inelastic supply. If the price of BTC is greater at the time of the transaction, one party will overpay, and if the price falls, the other party will be underpaid.
As a result, entering into such a contract is risky for both parties. By keeping a more stable value, AMPL reduces this risk.
Ampleforth vs. Stablecoins
Despite the fact that AMPL claims to be a stablecoin, people may wonder how it differs from BTC and other fixed-supply assets if their wallet holdings change. Others may wonder why AMPL is more valuable than competing stablecoins such as DAI, GUSD, or PAXG.
In a nutshell, the answer is related to the decentralization ethos and the goal to create a financial ecosystem free of political control and dependency on government-backed fiat currency.
Stablecoins backed by fiat and commodities are still dependant on traditional banks. Debt-marketplace-derived stablecoins, on the other hand, are unsustainable in a free market scenario that relies on frequent bailouts. Because of its intrinsic stability, Ampleforth asserts itself as an independent financial primitive that runs without the need for centralized collateral or lenders of last resort and is ideal for use in contract applications.
Ampleforth Use Cases
The Ampleforth protocol fills a unique gap in the crypto world, one that could see tremendous growth in the future. Investors can utilize the AMPL token to diversify or hedge cryptocurrency portfolios because it is less connected to the price of crypto assets like bitcoin (BTC) and ether (ETH).
In addition, the AMPL token is a reliable and economical form of collateral for decentralized finance (DeFi) protocols. The project team’s main goal, however, is to establish the Ampleforth protocol as a viable alternative to fiat-based finance.
To accelerate adoption, the Ampleforth crypto protocol incentivizes on-chain liquidity through its Geyser program. Geyser is a project that allows Uniswap AMPL/ETH liquidity providers (LPs) to stake their LP tokens on Geyser in exchange for additional AMPL tokens. Protocols like Ampleforth may see increased interest as the DeFi ecosystem grows.
The Ampleforth protocol’s elastic, non-dilutive character distinguishes it within the stablecoin ecosystem as a less dependant choice on the old financial systems that crypto and blockchain want to enhance.