31 August 2020

Ampleforth (AMPL): Adaptive Base Money for DeFi

In life, it always helps to be flexible. You could specialize in one thing or be useful in multiple situations. The latter approach, while more difficult to accomplish, actually opens up more possibilities. If Bitcoin or fiat is to take the specialized approach, Ampleforth (AMPL) takes up the gauntlet of a coin useful in multiple ways.

What is Ampleforth?

Ampleforth seeks to redefine the working model of a cryptocurrency. As such, this project is blending the functionalities of cryptocurrencies like Bitcoin and stablecoins.  In a nutshell, the idea is to create smart commodity money without the constraints of the respective types of cryptocurrencies. Consequently, Ampleforth is described more as blockchain-agnostic even though it operates as an ERC-20 token on the Ethereum blockchain. 

The AMPL supply is elastic. This elasticity means that its supply expands and contracts, depending on demand. The fluctuation in supply helps to keep prices relatively stable.  

Where have you heard that before? Stablecoins would be the most likely guess. Well, AMPL is not exactly a stablecoin because it does not aim to eliminate volatility but to reduce it. If you were to imagine AMPL tokenomics as a seesaw, the objective is to find a balance or equilibrium. To achieve equilibrium in this case, a change in demand should mean a corresponding one-for-one change in supply. If one of the sides of the seesaw goes too high or too low, it undercuts the entire purpose of having equilibrium. 

By retaining a flexible and elastic supply executed succinctly in a decentralized manner without affecting the spot market cap, the value of existing tokens isn’t diluted like it would have been in ordinary circumstances as demanded by market forces of supply and demand. Usually, if the total supply is increased, the token value should decrease.

But it is different in Ampleforth, and rather complicated. Token holders hold a fixed percentage of the total network’s supply rather than a fixed amount of tokens. As such, if there are changes to supply due to demand changes, the token holder still owns a proportionate amount of token depending on the level of adjustment. This dynamism and adaptability make AMPL a promising form of collateral fitting for the fast-shifting DeFi landscape while retaining its core utility as a medium of exchange. 

Ampleforth in Decentralized Finance (DeFi)

AMPL can serve as excellent collateral for Decentralized Finance (DeFi) dApps. Interestingly, there has been a spike in DeFi searches, ushering in a new era of opportunities for the savvy. AMPL can provide excellent-base money for such projects. 

The counter-cyclical economy, meaning supply is contingent on demand, is desirable for investors because it gives AMPL a low correlation to the likes of BTC and ETH. The project maintains a stable price range over a long period of time. This way, AMPL can be the best of both worlds. It aims to create a digital currency that works like commodity money but without the supply and issuance constraints of other commodity monies like Bitcoin and gold.

At the time of writing, Ampleforth had a market capitalization of $143 million on a circulating supply of 194 million AMPL. The supply is not fixed at that particular point and simply reflects the situation as it was at this time. Whenever the supply goes up the network depends on profit-seeking traders to restore equilibrium on the demand side by selling the credited AMPL and restore equilibrium. AMPL can, therefore, serve a unique function as a medium of exchange in the crypto market. The project can scale up supply to meet the demands of many more traders, yet retain stablecoin-like stability. 

Another way to look at it is that the project has a flexible supply of fiat yet eliminates the complete control of central banks over-issuance. The market gets to determine supply. 

The prominent faces behind the project are San Francisco-based engineer, Evan Kuo, and co-founder Brandon Iles. They founded the project together with a versatile team at the end of 2018. Given that this project did not get the tailwinds from the crypto boom of 2017, its resilience is remarkable. This feat has drawn prominent backers like Coinbase CEO Brian Armstrong. 

To Wrap It Up

AMPL aims to play a special role in the cryptocurrency space. It may seem ironic that the project’s premise is for crypto enthusiasts to embrace inflation. 

However, to create a truly functional DeFi economy, this model actually makes sense. The flexible tokenomics that Ampleforth uses to achieve this set it apart from any other token on the market. It will be fascinating to see where this project goes as adoption increases.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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