Liquidity mining incentives have been tried and tested, let’s see how the alternative stablecoin Ampleforth rides the roller coaster
Editor's Note: This article comes fromChain News ChainNews (ID: chainnewscom)Editor's Note: This article comes from
Chain News ChainNews (ID: chainnewscom)
Chain News ChainNews (ID: chainnewscom)
, Author: Riyao, published with authorization.
The market value of stablecoin Ampleforth (AMPL) soared 18 times in 20 days
Ampleforth (formerly known as Fragments), is a stable currency based on algorithmic reserves and currency supply strategies, aiming to realize a new type of digital assets with elastic supply strategies. However, rather than calling it a stable currency, the Ampleforth team prefers to think of it as a low-volatility cryptocurrency.
Ampleforth received $3 million in venture capital last year, led by True Ventures, with participation from Pantera Capital, FBG Capital, and Coinbase founder and CEO Brain Armstrong. In addition, Ampleforth conducted token crowdfunding in June 2019 as Bitfinex's first IEO project.
Different from many tokens and stable coins, the Ampleforth (AMPL) protocol has designed a unique elastic supply mechanism. When the price of AMPL changes, the protocol will generally expand or contract to all AMPL holders. ) to seek to reach a new equilibrium point. A simple understanding is that when the transaction price of AMPL is higher or lower than a predetermined threshold (such as $1), the Ampleforth protocol will trigger a rebase function to automatically increase or decrease the market supply of AMPL.
According to Ampleforth's official introduction, the working mechanism of AMPL tokens is: every 24 hours, the total supply of AMPL may be adjusted according to the price change of AMPL on the day, with the target threshold of about US$1.01 in 2019.
When the oracle shows that the price is above about $1.061 is a positive base, the supply will increase;
When the oracle shows that the price is between $1.061 - $0.961, no rebase will be triggered and the supply will remain unchanged;
When the oracle shows that the price is below $0.961 which is a negative base and the supply will decrease.
When the back-to-base is executed and the supply increases or decreases, the tokens in the personal wallet/smart contract account will change in proportion, which means that the amount of AMPL in each user’s wallet will change, but the user’s share of the total supply The percentage of the amount does not change. In this way, the low volatility of the AMPL transaction price is maintained, enabling it to function as a stable currency.
However, in the past month, AMPL, a low-volatility smart currency, has experienced high volatility.
Since June 23 this year, the trading price of AMPL has jumped over US$1.04, and has continued to fluctuate since then, reaching a maximum of US$4, and has never fallen back to around US$1.
According to Ampleforth's elastic supply mechanism, when the transaction price of AMPL exceeds its target threshold (such as $1), AMPL will maintain the price threshold by expanding the supply. Therefore, it is not difficult to find that along with the increase in the price of AMPL, there is also the expansion of the supply of AMPL and the rapid increase in the market value of the entire project.
According to the Lianwen query, from June 13 to July 13, within 20 days, the price of AMPL tokens rose from $1.02 to $2.61, an increase of 156%. During the same period, the total market value of AMPL tokens rose sharply from nearly $5.7 million to $2.61. 103 million, 18 times that of 20 days ago. In addition, according to the ranking of the defimarketcap website, among many DeFi projects, Ampleforth's market capitalization has now ranked among the top 15, and currently ranks 13th.
However, when we published this article, we found that the market price of AMPL has dropped significantly. At present, the price of the oracle machine (Oracle) displayed on Ampleforth’s official website has dropped rapidly from the highest point of $3.754 to $2.464 (this figure has a certain lag), while Bitfinex It is currently quoted at $1.655 on exchanges, down 27.0% in 24 hours.
Behind the Crazy: Launch of AMPL Liquidity Mining Incentive Program
And this series of crazy digital growth is largely due to a liquidity incentive plan recently introduced by Ampleforth (AMPL), which is also well confirmed by some market data.
On June 23, Ampleforth announced the launch of a liquidity mining incentive product called Geyser (Geyser) on Uniswap v2. Users who provide liquidity will be rewarded with AMPL tokens. Ampleforth plans to distribute 25,000 AMPL per month to users (what they call limited partners LPs) (rewards are distributed based on time-weighted stakes), with a maximum Annualized Yield (APY) 100% higher.
According to Ampleforth's official introduction, Geyser is a smart faucet that can stimulate liquidity on the chain. Users receive AMPL to provide liquidity for Uniswap. The more liquidity they provide, the longer the duration, and they will get the AMPL liquidity pool The larger the share, the whole process is non-custodial and carried out on the chain.
Ampleforth is not the first to deploy a liquidity incentive plan on Uniswap, but compared to other projects, they have also made some small improvements and innovations.
First of all, in order to limit user withdrawal, Ampleforth introduced the so-called bonus period (Bonus Period). The longer the period of holding AMPL, the greater the reward for users. "When the user starts betting, the reward factor is 1 times. As the staking period increases, the reward factor will also increase, and reach the maximum value of 3 times after 2 months. That is to say, holding for 1 month will get 2 times reward, holding for 2 months will get 3 times reward.
In addition, Ampleforth also stated that in the next few months, it will choose an appropriate time to launch similar incentive plans on other liquidity pools such as Balancer, Curve or Bancor.announcedIt is clear that the Geyers plan has rapidly driven the growth of the AMPL-WETH liquidity pool. According to Lianwen, the WETH-AMPL pool is currently the largest liquidity pool in Uniswap v2. The liquidity pool is the largest at $11.33 million, with a 24-hour trading volume of about $12.8 million, and a return on investment (ROI) of nearly 30 days. ) up to 134.52%.
In addition, according to Ampleforth official website
announced
According to the Geyers system data, currently on Beehive1.0 (an improved version of Geyser), the total deposit has exceeded 7 million US dollars, and now it is 7.752 million US dollars, and the total reward has been issued 1.32 million AMPL.
As more and more AMPL are motivated to be pledged, there will not be enough coins to enter the market for trading, so it will not be able to push its price back to around $1, but it will continue to rise, and the continuous rise will make users more profitable, attracting More people enter the market, and this cycle repeats, pushing up the market popularity and value of AMPL.
Two Arbitrage Opportunities in the Ampleforth Incentive Program
So how do users arbitrage in AMPL's incentive plan? In summary, through the Geyers system launched by Ampleforth, users can have two arbitrage opportunities.
The first is to provide liquidity on Uniswap to earn income
The Geyers system aims to distribute AMPL tokens to users who provide liquidity on Uniswapv2. The more liquidity users provide, the higher the income they get. The purpose is to distribute AMPL to more people and give it practical utility.
Uniswap is a constant function AMM automated market maker that allows users to provide liquidity to pools of two assets (AMPL and ETH in this case) at the same rate, anyone can enter, with one of the tokens to exchange for another, changing the ratio and thus changing the price of the token. Each transaction will pay a 0.3% handling fee to the liquidity pool, so the larger the transaction volume, the higher the handling fee income-this is also the main goal of users providing liquidity to the liquidity pool.
According to the description of the Ampleforth team, obtaining income by providing liquidity mainly includes three basic steps:
1) Deposit ETH and AMPL on Uniswap V2 (same ratio);
2) Receive UNI-V2 LP tokens (tokens generated by the AMPL-WETH pool on Uniswap);
3) Deposit UNI-V2 LP tokens into Ampleforth's Geyser system.
Then the user can wait for the income, and when the user redeems the UNI-V2 LP token, he will get the reward in the Geyser pool. In this way, users who provide liquidity on Uniswap will not only receive transaction fee rewards in the Uniswap reserve pool, but also receive AMPL rewards from the Geyser system, and neither Uniswap nor Ampleforth will charge additional platform fees.
However, it is worth noting that for Ampleforth, those who provide liquidity may face double arbitrage losses (Impermanent Loss). The liquidity provider is actually selling the two tokens in the pool (exchanging one for the other). If the AMPL price is rising and the user sells, then at the top, the tokens the user gets will be Much less tokens than when no liquidity is provided to the pool.
Coupled with Ampleforth's back-to-base mechanism, the loss may be even greater. If the user sells AMPL when the price of AMPL rises, it will neither get the return-to-base rewards of the sold tokens nor the subsequent return-to-base rewards of these back-to-base rewards. Because when expansionary back-to-base (increased supply) occurs, only AMPL tokens are held, and the corresponding increase in AMPL share will be obtained.
Additionally, AMPL has a more interesting and challenging arbitrage opportunity.
The second type is trading arbitrage between on-chain and off-chain exchanges
Ampleforth’s rebase every 24 hours creates an arbitrage opportunity between on-chain exchanges and off-chain exchanges. Because the price on Uniswap (DEX) can be used directly, and the centralized exchange (CEX) must be traded through the order book (order book). There is often a price difference between DEXs and CEXs. At present, it mainly occurs between Uniswap and Bitfinex/Ethfinex, two centralized exchanges.
When the price of AMPL rises and returns to the base, the wallet/contract balance of all AMPL holders will increase accordingly. At this time, the AMPL reserve on Uniswap will automatically adjust, the number of AMPL will increase, and the unit price of AMPL will decrease accordingly. However, AMPL on CEXs will The price will not change rapidly accordingly.
Therefore, arbitrageurs have the opportunity to buy AMPL at a price of less than $1 on Uniswap (by depositing ETH), and sell AMPL at a price greater than $1 on CEXs to complete the arbitrage. Of course, gradually, this arbitrage The action will bring the price of AMPL to $1 on both types of exchanges.
However, this arbitrage process also tests the user's ability to judge. It is necessary to select a point to buy at a low price, and then select a point to sell at a high price. Since deposits and withdrawals in CEX take a certain amount of time, it is best for users to make deposits and withdrawals in DEX and CEX in advance. There are corresponding positions, which are convenient for these two kinds of trading operations at the same time, which has certain requirements for users to maintain daily positions.Will AMPL go back to the base price of $1?Maybe we will wonder, Ampleforth claims to be a low-volatility smart commodity currency, and will automatically adjust the supply to adjust the market price, so will it return to the original benchmark level after this surge?
In this regard, on July 6th, Ampleforth's official community forum is answering questions
answer
The question of "whether AMPL will return to $1 by returning to the basics" has been raised. To sum up, the market price of AMPL is determined by the market after all, rather than directly adjusted through the Ampleforth agreement.
The post pointed out that AMPL has no anchor (peg), unlike stablecoins, so the price is determined by the market. The Ampleforth protocol has no way to reset the price to $1 during the rebase period, the rebase process can only affect the supply.
Prices, on the other hand, are controlled by the market (buyers and sellers). As the market price rises, the supply agreement will increase AMPL to incentivize market participants to sell their AMPL and spur prices back to the base range ($1.06 - $0.96). But if buyers are consistently higher than sellers, the price of AMPL will continue to increase since it is not pegged to any asset.
Likewise, when the token price is below the underlying range, it is the same. The supply will decrease over time and the price will not automatically adjust to $1. The price must be driven back to the base equilibrium range by buyers buying tokens in large quantities in the market.
How do users view AMPL liquidity mining incentives? Is it sustainable?thinkGenerally speaking, crazy speculation and arbitrage behaviors are difficult to sustain for a long time. The sharp increase in the price of AMPL has naturally sparked heated discussions among the community and other users about its mechanism and sustainability.
0x protocol developer @0xEther
, this model of AMPL is completely insane/perverse, obviously unsustainable, and will definitely collapse eventually. Perhaps at some point, the pressure to cash out before everyone else will peak, at which point it will only take a weak hand to bring the whole system down.thinkBut he also pointed out that this is exactly what AMPL is designed to do. As long as people are interested in this "stabilization" mechanism, it will continue to cycle in this way. Even if it crashes, it is possible to recover again.
Blockchain Enthusiast, DAO Researcher @BlockEnthusiast
think
@BlockEnthusiast also specifically pointed out that when arbitrage stops, there will be such an important period, even if the average capacity (MC) slows down growth, or even declines invisibly, but the rebase (rebase) is still positive, which means that the supply will continue Increase, he thinks this will be a good opportunity.SummarizeIn addition, once the price drops to around $1 after rebasing, it is actually a good opportunity to establish its price bottom among AMMs (automated market makers), which can easily trigger arbitrageurs and other AMMs to start entering the market, thus establishing a A broader automated AMPL market maker.
Ampleforth community forum member idefy_eth commented on the Geyser system
Summarize
It has been highly recognized by the community. In addition to a detailed analysis of Geyser's operating mechanism, he pointed out that the entire Geyser incentive plan actually gives users a bittersweet choice. The reason is that there are great opportunities, but there are also unknown risks, especially for When the whole system and the back-to-base mechanism are not well understood, he believes that the following points must be considered when participating in the incentive system to seek benefits:
This trend certainly won't continue as wildly as the previous two weeks.
Everyone wants to sell at the top of AMPL, but very few people can actually do it.
Transaction fees need to be factored into cost considerations, which can have a big impact on returns.
A rebase near the top has a very large impact on the value of the entire liquidity pool.
