Is Elastic Finance Ponzi or Innovation? Understand the Valuation Framework and Possible Use Cases for Elastic Tokens
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom), published with permission.
Chain News ChainNews (ID: chainnewscom)
Compiler: Perry Wang
Chain News ChainNews (ID: chainnewscom)
, published with permission.
Written by: AmpleSense DAO, the Decentralized Autonomous Organization for the Alternative Stablecoin Project Ampleforth Ecosystem
Compiler: Perry Wang
"Elastic Finance" (EeFi) has brought exciting monetary and technological innovations, innovations that have not been seen in the cryptocurrency market for many years. The emerging elastic financial sector led by Ampleforth launches tokens that will dynamically adjust the supply. This dynamic adjustment is called "rebase". "Rebase" enables crypto assets to absorb demand (measured by price) in order to significantly reduce the volatility of the asset.
In theory, rebase makes elastic financial assets such as algorithmic stablecoins relatively stable in price compared to Bitcoin BTC and Ethereum ETH.
But like any emerging disruptive innovation, the rise of resilient finance has sparked intense controversy, confusion, and debate among developers, investors, and others. In fact, the current prevailing sentiment around resilient finance is negative, mainly due to four factors:
Insufficient understanding of rebase: rebase means that the supply of tokens automatically increases (positive rebase) or decreases (negative rebase) according to demand, and demand heat is measured by price. The first confusing question is how or why token balances rebase. The second question is how rebase can reduce price volatility without requiring collateral. Unfortunately, many investors buy resilient assets without understanding them, resulting in some losing significant amounts of money.
Price volatility: Elastic assets have been criticized by many for failing to achieve the same stability guarantees as centralized and semi-centralized stablecoins.
Practicality concerns: Elastic assets are highly experimental and the use cases for these tokens have not been clearly communicated. This has led many observers to view elastic finance as "Ponzi economics," or to believe that rebase series tokens do not bring significant benefits over traditional cryptocurrencies.
Very limited adoption: To date, elastic assets have been primarily used for speculation and have not yet been integrated into many popular DeFi projects. This is because elastic tokens cannot be combined with DeFi protocols in most cases. Furthermore, developers and their communities believe (or grow to believe) that these assets do not bring additional or desirable utility.
Now is the time to revisit resilient finance and to set aside the traditional (negative) view.
We have written this article to unravel common questions and to respond to criticisms of resilient finance:
Provide a clear explanation of what rebase is designed to do and how it matters to the wider cryptoeconomy
Helps users, investors, developers, and others objectively evaluate resilient assets to determine which ones deserve attention and are likely to achieve the greatest success
Demonstrate the uses of resilient assets beyond trading and speculation
Introduces resources available to improve and expand understanding, implementation and development of resilient financewww.amplesense.ioWhat are the benefits of rebase?
Let them start by looking at the definition of rebase. A lot of people are more concerned with how the rebase works, especially the elements of how this mechanism triggers token supply increases and decreases (both positive and negative rebases) from a mathematical and smart contract perspective. How rebase works is really interesting, but we think it's more important to focus on the why rather than the how.
Why does Rebase exist? The sole purpose of a rebase is to incentivize individuals to buy and sell tokens, helping tokens achieve stability around a specific price range or target price.
According to AmpleSense DAO and
, the two types of rebase "symmetric/asymmetric rebase" are defined as follows:
Asymmetric (non-standard) Rebase: After rebase, the balances in all wallets will not increase or decrease in the same proportion. For example, some people accept negative rebases. Those who voluntarily reduce their token balances are rewarded with higher rewards when rebase is forward.
Ampleforth, the originator of elastic assets, uses a symmetrical rebase mechanism. Since the launch of Ampleforth, a number of teams have launched resilient tokens with asymmetric rebase, with the main aim of reducing the impact of negative rebase (supply contraction) on all token holders.
Regardless of whether the rebase is symmetric or asymmetric, the basis for judging the pros and cons of elastic tokens should be their relative stability around the target price range (or price anchor) over a long period of time. If a resilient token fails to achieve price stability for an extended period of time, its primary function has failed.
For example, taking 12 months as an example (December 2019 to December 2020), the price of Ampleforth is basically around $1, see the figure below for details. (Ampleforth's price target is within plus or minus 5% of its dollar value in 2019.) Meanwhile, Ampleforth's market cap has risen roughly 27,000% (from $1.35 million to $367.11 million).
image description
Ampleforth Price Target Performance: Dec 2019 to Dec 2020, Data Source: AmpleSense DAO, DataMetrics Hub, forum.amplesense.io
From a practical perspective, users and development teams can develop products, services, and applications that take advantage of:
Stability of certain elastic assets. For example, they demonstrate the ability to eventually return to the target price range (if they actually achieve this difficult feat)
Positive rebase has the ability to bring organic liquidity that does not require additional capital injection (assuming asset demand grows) or collateral
Elastic assets are dazzling and charming, we will show you the true face
In view of the explosive popularity of Ampleforth in July 2020, dozens of teams subsequently launched elastic assets using symmetric and asymmetric rebase mechanisms. Elastic assets are alluring, and many people don't know how to judge which protocols are worth investing their time and attention. We hope to evaluate these projects through a new evaluation framework: The AmpleSense DAO Elastic Asset Evaluation Framework.
The framework focuses on five criteria that can be used to analyze the short-, medium- and long-term viability of resilient assets. We share this framework with the crypto community in the hope that it will encourage informed, objective discussions, and informed decisions about the relevance and viability of various resilient assets.
Evaluation Criteria: Value Proposition Credibility
There are a number of resilient financial assets emerging, with a major focus on rebase. Credibly resilient assets are designed to meet specific goals (e.g., token price stability without staking), rather than simply positioning rebase as a potential profit-generating mechanism.
scoring standard
Less credible value proposition: The main goal of this type of asset is to provide potential profits to early investors through the rebase mechanism; other use cases are unclear or less specific than standard crypto services.
Moderate value proposition credibility: There are other ways to achieve this asset's specific goals using standard crypto, but rebae may help fill a critical unmet need in centralized or decentralized finance.
The value proposition is highly credible: the Rebase design mechanism matches well with the asset's goals; while other encryption methods are less than ideal for key reasons (eg, may raise regulatory concerns, increase systemic risk, etc.).
Evaluation Metrics: Technical Robustness and Security
To be successful, resilient financial assets must be secure, operate through transparent smart contracts, and require robust technical infrastructure such as oracles.
Scoring criteria:
Low technical robustness and security: no security audits, weak technical infrastructure (e.g. high risk of oracle attack, or rebase needs to be manually triggered)
Medium technical robustness and security: There are security audits, there are oracles, but smart contracts are not open source, unverified, or have hidden functions (for example, the protocol is driven by a non-publicly audited proxy contract).
High technical robustness and security: the smart contract has been carefully audited, the code is open source, there is no hidden function, and there is a powerful oracle machine.
Evaluation Metrics: Decentralization
Excellent elastic financial assets must be highly decentralized, uncensorable and universally adopted.
Scoring criteria:
Low level of decentralization: Asset ownership is highly centralized, transactions are censorable, and adoption is limited to initial speculators.
Moderate degree of decentralization: asset ownership is slightly centralized, transaction review exists, but will gradually withdraw, and adoption is no longer limited to speculation.
High degree of decentralization: asset ownership is highly decentralized, the protocol has rich use cases, and transactions cannot be censored.
Assessment Metrics: Regulatory Risk
As investors, users, and developers consider the long-term viability of different resilient assets, they should consider the new regulatory landscape surrounding cryptocurrencies, especially in relation to issues such as stablecoin issuance and securities regulation.
Scoring criteria:
High regulatory risk: Resilient assets may be included in heavily regulated areas, such as algorithmic stablecoins, or sold through non-compliant ICOs.
Moderate regulatory risk: The asset is not a stablecoin, but was sold through a non-compliant ICO, or the asset may be classified as a security.
Low regulatory risk: Assets do not belong to stable currency, the team conducted a compliant ICO (or did not conduct an ICO), and the token does not meet securities regulatory standards.
Evaluation Metric: Time Price Stability
The primary goal of the rebase mechanism is to achieve price stability of assets over a long period of time. Temporal price stability is a measure of the length of time an asset stays within a target range. If the asset deviates from the target range, the supply reduction phase (negative rebase) will affect investors, developers and users more than the increase (positive rebase).
Remarks: For resilient assets that are pegged to the price of a single cryptocurrency, an index (e.g. a basket of currencies), or the total market capitalization of cryptoassets, high temporal price stability may be more difficult to achieve.
Scoring criteria:
Low price stability over time: asset drifts outside the target price range most of the time—especially during a negative rebase, which means insufficient demand for the asset; market fails to manage price target deviation rather than stable Resilient assets (e.g., the asset is pegged to a specific cryptocurrency price).
Moderate price stability over time: The asset has a fairly long period of time within the target price range, but also experiences a prolonged period of increasing token supply as demand increases.
High temporal price stability: Assets stay within the target price range most of the time, token supply has experienced mild or limited phases of increase and decrease (negative and positive rebase).
Do resilient assets work? Still useless?
A common critique of elastic assets is that they are useless beyond speculation, or fail to provide solutions to problems. but it is not the truth.
From a cryptoeconomic macro perspective, elastic assets, especially those tokens that have proven capable of serving as a general stable store of value and medium of exchange, may contribute to a more prosperous DeFi ecosystem, and may even be used as currency, reaching all Heights that cryptocurrencies have failed to reach.
Many observers and analysts have pointed out that DeFi is increasingly vulnerable due to its over-reliance on collateral and centralized stablecoins. Currently, policymakers and regulators around the world are targeting stablecoins with an eye toward reducing their influence and reining in their growth. One of the most recent developments is the introduction of the STABLE Act by members of the U.S. Congress in late 2020, which would prohibit centralized and decentralized stablecoin issuers from operating without a banking license.
If resilient financial assets are widely adopted, they will significantly reduce the crypto ecosystem's heavy reliance on centralized stablecoins, providing multiple avenues for developing innovative, stable stores of value and financial instruments with only very limited access from governments and regulators Constraints far exceed the benefits that stablecoins can provide.
Admittedly, using elastic assets to help DeFi reduce its regulatory loopholes is a long-term project. Now is there any way to use elastic assets? There is.
Are all elastic assets stablecoins? no.
It should be noted that not all rebase assets are stable currency functions. Many observers lump all rebase assets into the stablecoin category, which is inaccurate and incorrect. Different resilience coins seek to achieve stability over different time periods. Algorithmic stablecoins (using a rebase mechanism to achieve prices roughly equal to $1 or tightly pegged to other fiat currencies) are just one such resilient asset. Other elastic assets also exist, as shown in the table below.
Resilient Assets: Current Functions
Stable store of value and medium of exchange (over an extended period of time)
Rebase is designed to function as a reasonable stable store of value (eg, a price that reverts to a target price range over time) and an asset that is not correlated with mainstream markets.
Example: Ample
Algorithmic stablecoins (e.g. tokens pegged to $1 most of the time)
Rebase, combined with other techniques that encourage supply reduction, together help tokens maintain their peg to the value of $1 with as little deviation as possible.
Example: Empty Set Dollar
Rebasing Index / Crypto Anchored Tokens (e.g. tracking the total market capitalization of crypto tokens, etc.)
Rebase is tied to dynamic targets, such as the total market capitalization of encrypted tokens, or the price of a specific cryptocurrency, providing investors with the opportunity to acquire positions in large markets or emerging protocols/tokens through a single asset.
Examples: Base Protocol, Digg
We reserve our position on which use cases will have the most impact going forward. Over time, the market will determine which use cases are the most successful and of the highest value to the crypto ecosystem.
The following three tables describe emerging and envisioned (not yet launched) use cases for resilient financial assets. Our DAO is developing several of these landing solutions.
Numerous related use cases will be launched in the coming months and years, including using elastic assets as denomination units of financial contracts.
The Road Ahead: Scenarios for the Years Ahead
