An article to understand the scarcity design of the alternative stable currency AMPL
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
It’s been a while since I’ve seen such a bold design, AMPL impressed Blue Fox Note! Whether or not AMPL succeeds, it will leave its mark on crypto history. At the same time, it is also bound to be a highly controversial project, which will stay with it until it finally succeeds or fails.
For this reason, Blue Fox Notes will continue to pay attention to its subsequent evolution.
secondary title
Bitcoin's Vision and Challenges
The birth of Bitcoin is to build a system that is completely different from the legal currency. It tries to change the problems of monetary inflation and the recurring economic crisis of the credit economic system. This is also Satoshi Nakamoto's original vision: to build a peer-to-peer electronic cash payment system.
In the practice of Bitcoin for more than ten years, it has achieved great success. From the time when few people paid attention to it, it has grown into a cryptocurrency with a market value of more than 160 billion US dollars. During this development process, people have gradually discovered that Bitcoin presents the characteristics of digital gold. Due to its expected rise in the future, Bitcoin holders are more willing to hoard Bitcoin than to use it for daily consumption and payment.
Bitcoin has gradually taken the place of digital gold, and its primary use is not as a medium of exchange or a unit of account, but as a store of value. (Of course, as long as it occupies the top spot in value storage, it also means that it still has huge space. At present, the value of gold is also about 10 trillion US dollars. Compared with the value storage in the form of gold, Bitcoin has its own advantages. Bitcoin Coin is far from its end game.)
The current direction of Bitcoin development is largely determined by its inherent characteristics:
hard top
There are only 21 million bitcoins, and there will be no additional issuance. This causes it to only become more and more scarce. And the scarcity makes it have huge upside expectations. But at the same time, it also leads people to think of it as digital gold for storage.
Throughput and Speed LimitationsBitcoin's TPS is about 7, which makes it completely unusable as a currency for daily payments. For remittances, this waiting time is acceptable, but for daily payments, it is unbearable.》、《These inherent characteristics of Bitcoin have their greatness, because it tries to solve the problems of inflation and credit economic system, but judging from the development of the past ten years, Bitcoin still has a long way to go.There are currently three schools of stablecoin experiments. One is stablecoins anchored to USD, such as USDC, which can be redeemed 1:1 with the US dollar; the other is stablecoins generated based on over-collateralization of encrypted assets, such as DAI, which anchor the target For USD, but not a hard peg. The last is a fully crypto-native decentralized stablecoin. Regarding the exploration of stable currency, Blue Fox Notes has previously published "
The Holy Grail of Stablecoins: The Exploration of New Paths
Meter's road to stable currency: a completely different exploration from Libra
"And other articles.
secondary title
AMPL is one of the boldest explorations of cryptocurrency experimentation
At the same time, AMPL cannot currently be regarded as a stable currency. It is not backed by legal tender or other assets. It is more like an encrypted native currency, trying to find a certain balance of encrypted assets, and trying to develop asset types that are not highly correlated with Bitcoin and other encrypted assets.
In the short term, it is unlikely to become a cryptocurrency with stable prices. Of course, if it has a chance to achieve a balance between supply and demand in the future, it may form a certain effect of an encrypted native stable currency. But this is unlikely to happen for a long time. Therefore, in the short term, AMPL is also an encrypted token with certain volatility, rather than an encrypted native stable currency.
In the short term, AMPL tries to become an asset that is not highly correlated with other cryptocurrencies. The medium-term goal is to become one of the basic components of DeFi, such as becoming a decentralized encrypted collateral. The ultimate goal is to become a better Bitcoin, which can be both It has the characteristics of value storage, unit of account and exchange medium, and has the characteristics of encryption native, no inflation, elastic supply, no trust, no dilution, etc.
All in all, AMPL's mechanism design and vision are destined to be a highly controversial project. People's views on it will be polarized.
secondary title
Different from the absolute quantity scarcity of Bitcoin, AMPL pursues an alternative scarcity. AMPL has no fixed supply, which breaks the inherent thinking mode in the encryption field, which is hard-top thinking. But it is different from the traditional fiat currency inflation system. It has no hard cap and can solve the problem of unlimited issuance and inflation. This is what makes AMPL unique: scarcity based on ownership.
Specifically, it incorporates the non-dilutive idea of Bitcoin, as long as the user has a certain percentage of AMPL, it will never be diluted, why? Because it can increase and decrease with the increase of AMPL, it is an elastic supply, but the proportion of user ownership remains unchanged. Of course, if you buy more, it is equivalent to increasing the ratio.
That is to say, the number of tokens may increase or decrease, but it is essentially similar to the fixed supply of Bitcoin. For example, if you own 1btc, then you own 1/21 million of the entire bitcoin. As long as the market value of bitcoin is rising, the value of 1btc itself will also rise, because there will be no additional issuance.
In the same way, in AMPL, after purchasing a certain amount of AMPL, its proportion in the overall AMPL token is fixed (assuming no buying or selling). When AMPL is issued additionally, the AMPL in the wallet will increase in the same proportion; when the AMPL decreases, the AMPL in the wallet will decrease in the same proportion. If users hold AMPL for a long time, it essentially expects the overall market value of AMPL to rise. This is similar to Bitcoin. Of course, there will also be many users who make short-term quick buys and sells to achieve arbitrage.
secondary title
AMPL applies the logic of supply and demand to elastic supply
It is mentioned above that there is no fixed supply of AMPL, and here comes the problem, since there is no fixed supply. So, what is the basis for the increase or decrease of its supply?
The most basic logic of economics is based on supply and demand. This is the basis of all transactions and the essence of the market. AMPL applies the logic of supply and demand to cryptocurrencies and regards currency as a commodity based on supply and demand.
Traditional monetary policy is generally an important tool for regulating the economy. The formulation and implementation of its policies involve political, economic and social factors, and often face information asymmetry. This is why Hayek believed that the traditional monetary system could not work effectively.
AMPL is relatively simple and crude, and the main logic that determines its supply is the relationship between supply and demand in the market. It does not link monetary policy to economic or social issues (such as corporate credit crises, employment, and many other complex issues).
Because its logic is relatively simple and transparent, its circulation and price fluctuations are clearly visible and expected, which makes it possible to achieve a certain balance through the game mechanism of the market.
how is it done
AMPL is a smart contract based on Ethereum. The AMPL protocol can automatically adjust the number of AMPL tokens on all user wallets. When the market price of AMPL is higher than a certain threshold of the target price, the balance of tokens in the wallet will also automatically increase, which is equivalent to issuing additional issuances to all wallets in proportion; when the market price of AMPL is lower than a certain threshold of the target price, the tokens in the wallet will The balance will be reduced proportionally.
This is the most important "token rebase" in the AMPL protocol. The token base is readjusted every 24 hours (currently 10 am Beijing time). This adjustment does not cause dilution, but increases or decreases in the same proportion.
According to the price of AMPL, if the agreement finds that the total amount of AMPL needs to be readjusted, it will be adjusted once a day. However, it has a supply smoothing process during implementation. This is also part of the algorithm of the AMPL protocol, and its purpose is to avoid the overreaction of the protocol.
This period of time is in days, so this period of time can be counted as k days. If there is a deviation of the above 20%, the protocol will update the balance of the wallet according to the 20%/k method. If k is 10 days, then the update balance is 2% of the total amount. However, the percentage of this numerator is recalculated every day, and it is performed every 24 hours. This operation is stateless, that is, the agreement will recalculate the supply target according to its latest price every day, and based on this, it will calculate the supply target for the next k days accordingly. supply adjustments.
To sum up, AMPL has a target price. If its target price is $1, then its nominal exchange rate is higher than a certain threshold, and the agreement will increase the number of tokens of all users year-on-year; if the price of AMPL is lower than the target price by a certain threshold, the protocol will reduce the number of tokens held by users.
image description
secondary title
AMPL urges people to play games and arbitrage through the transmission of exchange rate price information
The balance of supply and demand is achieved through price information transmission and prompting people to play games and arbitrage. This is the key point for AMPL to achieve its price balance.
Through the timely transmission of AMPL price information, the daily increase or decrease of AMPL can be expected. These are transparent and predictable. This drives user decisions and behaviors. It is a fully decentralized network consisting of many different participants. What prompts participants to make decisions is the price information of AMPL and the increase or decrease of its supply. The reaction behavior of participants to the supply and price information will in turn affect the price and supply, so as to finally achieve a certain equilibrium.
(AMPL's feedback mechanism, SOURCE:AMPL)
If it is a long-term holder, the number of its tokens will change daily according to the ratio, but the corresponding ratio is unchanged. For short-term traders, they will carry out arbitrage through short-term trading, so as to achieve the balance of price and supply.
Assuming that the target price of AMPL is US$1, a short-term trading user, Xiaolan, initially holds 1AMPL. Due to the increase in demand, its market price rises to US$1.2, which deviates from the target price by 20%. The agreement will issue additional tokens. At this time, Xiaolan owns 1.2 AMPL, and the price remains at $1.2. This means that Xiaolan can sell for arbitrage. When the price of AMPL falls back to the target price, that is, when the target price of 1AMPL is 1 USD, if Xiaolan has no short-term operation, Xiaolan still has 1.2 AMPL, and the overall proportion remains unchanged. And if Xiaolan sells and buys in the short term, he will have the opportunity to obtain more AMPL, and the overall proportion will increase. Of course, this also involves grasping the timing of the transaction, which has certain difficulties. According to the current situation, as of the writing of Blue Fox Notes, the price of AMPL is 2.669 US dollars, and its target price is 1.009 US dollars. Since the demand has been rising, this will lead to the continuous issuance of AMPL until the demand declines, bringing the price back to the target price .
If the tokens decrease, Xiaolan owns 1AMPL at the beginning, and the price is 0.8 US dollars. Since the price is 20% lower than the target price, the tokens will be reduced year-on-year. At this time, Xiaolan has 0.8AMPL, and its unit price is still 0.8 US dollars. If Xiaolan does not perform any operation at this time, when the market price returns to the target price, Xiaolan will have 0.8 AMPL. If Xiaolan buys more tokens at $0.8, he can increase the proportion of his tokens.
AMPL is a continuation of Bitcoin innovation
Human beings have never stopped experimenting and exploring the advancement of currency, from the initial shells, cattle and sheep, gold, and silver to the later "Jiaozi", and then to the "legal currency" that broke away from gold after 1971. The financial crisis in 2008 gave birth to Bitcoin, and Bitcoin is just the beginning. With the development of blockchain and the Internet, people's exploration of truly digitally native cryptocurrencies will continue.
AMPL is still very early, and it is hard to say that it will be successful in the future. However, its uniqueness, its mechanism of additional issuance and reduction according to demand, is something that traditional economies cannot do quickly and in a timely manner. Changes are transmitted through price in time and reflected in supply, which is a new cryptocurrency experiment.
AMPL will either go down the drain or become one of the biggest developments in crypto history.
secondary title
Ethereum pioneered smart contracts, which started the world of protocol governance. AMPL is a cryptocurrency that implements its protocol management based on Ethereum, which makes full use of the permissionless features and security of Ethereum.
The idea of decentralization is easily misunderstood. Whether it is Bitcoin, Ethereum, or other tokens, its core is not entirely decentralized, but a protocol-based game mechanism. What it faces is not institutional trust, but protocol trust. The agreement will not be tampered with, and people play games based on a transparent mechanism.
The AMPL protocol is a smart contract built on Ethereum, which has sufficient protocol trust, that is, no trust. This is the basis for ensuring the operation of its mechanism.
If AMPL grows into a billion-dollar or tens-of-billion-dollar cryptocurrency, the value of Ethereum, as the public chain that carries it, will also rise accordingly. From this perspective, if AMPLs can succeed, it will eventually push Ethereum towards a trillion-dollar encryption ecosystem.
secondary title
Sources of Value and Risks of AMPL
Through the above elaboration, we mentioned its innovative side, which is impressive. However, any innovation has another side, and AMPL is no exception. There are also great uncertainties and risks in AMPL. The risk of innovative projects is far greater than that of ordinary steady-state projects, which is the cost of innovation. If you are an investor, you must control your risks and make decisions carefully.
what risk does it have? In addition to general system risks such as smart contracts and oracles, we need to mention the risks of the mechanism itself. This is where the greatest uncertainty lies in its future.
The value of Bitcoin is supported by an energy-based game mechanism, and DeFi is supported by asset mortgages, so what does AMPL rely on? At present, it has a balance mechanism based on supply and demand, and has its characteristics of no trust. It relies on speculative games. People use real value assets, such as BTC and ETH, to replace and support AMPL. If people withdraw assets such as ETH from the AMPL system, its price and market value will fall, and the supply will also fall. The drop in supply may or may not stop the continued decline in prices. The core is still the real demand for AMPL and people's confidence in AMPL.
The current demand for AMPL comes from speculative demand, and it is expected to rise. Since its market price is higher than the target price, people can get more tokens by participating in AMPL, which is profitable, which is similar to asset-backed mining. But the support of this value comes from the demand for buying. Whether it can be supported for a long time depends mainly on the equilibrium point formed in the future.
Now that the market is rising, everyone is confident to continue. If its market price is lower than the target price, will people buy it for arbitrage, thereby pulling back the target price? Or is it due to token shrinkage, further causing people to sell off? Further drawdowns because of people selling, and negative feedback from that? It all depends on people's confidence and market behavior. This has yet to be verified in practice.
