4130% increase? Interpretation of the brain-opening project AMPL in one article

Summary

Summary

Ampleforth's AMPL is a cryptocurrency with an "elastic price" feature that adjusts its supply in response to demand -- that is, it rises when the price is above $1, and vice versa.

On June 1, 2020, the market cap of AMPL was $7.8 million. Today, it has a market cap of $330.5 million (+4130%).

Ampleforth's elastic supply does not provide practical functionality beyond cryptocurrencies such as Bitcoin. The only difference is where is the volatility (price/supply)?"secondary title"Most crypto protocol tokens function like protocol stake ownership, but Ampleforth's AMPL is intended to be a currency. Recently, interest in Ampleforth has increased significantly. On June 1, AMPL had a market capitalization of $7.8 million. Less than two months later, it has a market cap of $330.5 million, up 4,130%.

In June 2019, the Initial Exchange Offering (IEO) held on the Bitfinex platform was AMPL. During the launch, Ampleforth raised $5 million in just 11 seconds, reaching the hard cap for the fundraising. Previously, Ampleforth had raised $9.8 million in two rounds of venture capital, with investors including Pantera Capital, Arrington XRP Capital, Slow Ventures, FBG Capital, The Spartan Group, and Coinbase CEO Brian Armstrong.

Ampleforth is described as

A digital currency whose supply is adjusted daily based on market conditions

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Source: Coingecko Coingecko

In practice, the effect is relatively smooth, with adjustments made every 24 hours. The protocol automatically adjusts the supply using the previous day's average price. Currently, the formula used to calculate the supply adjustment is (x / 10)%, where x is the difference between the current exchange rate and $1. For example, when the price of AMPL rises to $1.1, the supply will be adjusted by (10 / 10)% or 1%.

Supply adjustments are achieved by increasing or decreasing the amount of AMPL held by each wallet. This is very important as it means that the value held by users will fluctuate with the market cap of AMPL.

If the user holds 100 AMPL in his wallet, with a total value of $100, and the market value of AMPL increases by 50%, then the user holds $150 of AMPL, and a single AMPL is worth $1.5. After the supply adjustment, users still hold AMPL worth $150, but the number of AMPL they hold will increase to 150.

SourceThe Block Research

A common misconception among users is that the purpose of AMPL is stability, i.e. it is some type of stablecoin. This is not the case, and it is worth noting that while Ampleforth has marketed itself as a stablecoin in the past (which may have had something to do with the system’s early design), the team has since made it clear that AMPL is not a stablecoin.

Users' holdings are still fluctuating because there is not much difference between keeping the price stable or the unit stable. If all users experience growth and contraction at the same rate, it means that there is no change in supply at all.

secondary title

What was Ampleforth designed for?

According to the developers of Ampleforth, this system has two main benefits:

Encourage a stable unit price

It uses counter-cyclical pressure. This means that if the price falls, the dynamics of AMPL limit the price drop and vice versa.

The first is fine because it works if you want to shift volatility from price to supply. If the supply of bitcoins in each wallet doubles when the price doubles, then the unit price of bitcoins remains relatively stable."Supply can be adjusted for any reason. For example, Polkadot is planning to redefine the denomination of DOT tokens with 100x or 1000x splits. The rationale for this is that it improves readability by reducing the need for decimal points. This also has the psychological benefit that people can now afford to buy a whole DOT token. But in fact, the only useful thing is to increase the speculation of users who don't understand, because the resetting of the denomination has not brought any change to the value of Polkadot."But does the second make sense: is there any economic use in shifting volatility from price to supply?"It is argued that this dynamic makes AMPL a useful hedging tool in crypto portfolios, as cryptocurrencies are generally correlated and when cryptocurrency prices fall, AMPL prices rise as AMPL prices return to equilibrium. Additionally, this could help AMPL become a very useful type of collateral in systems like MakerDAO, as it can offset falls in collateral like ETH. In addition, the purpose of AMPL is to offset runaway inflation and deflation through supply adjustments.

Ampleforth passed

slow

Fast" (speculators) and traders' reactions to price and supply changes are used as examples to illustrate this point. The table below demonstrates the "logic of Ampleforth's counter-cyclicality".

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Source: Ampleforth Red Book

In the above expansion example, the price of 1 AMPL reaches 1.2 USD (user holding value is 1×1.2 USD = 1.2 USD), and at the moment after the supply adjustment, both Alice and Bob will hold 1.2 AMPL ( Now the user holding value is 1.2×1.2 US dollars = 1.44 US dollars), but the price remains at 1.2 US dollars. Since the supply will increase, there will be an incentive for someone to sell above $1 before the AMPL price returns to equilibrium. This creates countercyclical pressure."Ampleforth describes such behavior as: arbitrageurs make profits before the price returns to the equilibrium value (when 1 AMPL is equal to 1 USD) after the supply-adjusted market value exceeds the expected value instantaneously.

Source: Ampleforth Red Book

The problem with this logic is that there is no reason why its underlying assumption is correct - that when you increase the supply, there is an arbitrage opportunity. Increasing or shrinking the supply is equivalent to a stock split, which does not change the value of the system itself. Changes in supply are algorithmic and can be known in advance, so the market probably knows what the market value is at a certain moment.

For example, if Apple did a stock split and doubled the number of shares, no one would think

Fast "traders have an arbitrage opportunity before returning to the correct price. If we complicate the process a little bit so that Apple's stock price target is always $1, there is no arbitrage opportunity created either.

If this method of retargeting is implemented, Apple stock would not be considered a countercyclical financial instrument. If Bitcoin forks into two versions, Bitcoin and Bitcoin AMPL (identical except for shifting price fluctuations to supply), the market will likely see the two products as the same, and the two products Taken together, it doesn't reduce any risk.

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