Ampleforth is a new type of "rebase" cryptocurrency. The AMPL token, while not a stablecoin, targets being in parity to the purchasing power of the 2019 US Dollar. To accomplish this, the total supply of the token changes daily. At the same time, however, the overall ownership percentage of each holder is kept the same.
What problem does Ampleforth solve?
The properties of a base money influence the behavior of the financial stack built on top of it. Ampleforth is designed to be a base money that combines two previously incompatible properties: elastic supply and rules-based governance. The Ampleforth Foundation is building pieces of the financial stack that take advantage of this unique combination of attributes, further expanding what decentralized finance can accomplish.
Rules and fixed supply
A base money is the most elemental unit of value in a financial stack. This means that its value does not derive from convertibility into another currency—unlike casino chips, for example, which you must cash in to use outside of a casino. For this reason, the intrinsic attributes of a base money affect the financial stack and financial functions built upon it.
Fixed-supply assets like gold have been used as base money in many world economies, including the US, prior to 1971. Because the supply of gold is finite, the gold price can skyrocket in times of sudden and high demand, creating a ripple effect through the credit money system it feeds. Contracts or notes settled in gold during a demand spike are affected, as suddenly the payback value is more costly.
The Bretton Woods Agreement of July 1944 sought to fix this. It created an international currency exchange pegged to the USD, which was, in turn, pegged to the price of gold. It also created two new international institutions; the IMF and the World bank. The agreement's goal was to add more levers with which world leaders could affect international trade through money supply, like fractional reserve banking and international lending, while maintaining gold as the base money.
Participating countries agreed to peg their national currencies to the USD, and the US agreed to keep enough gold reserves to cover all USD in circulation. Concurrently, the IMF and World bank provided outlets to create currency supply flexibility, which participating countries believed would help mitigate spikes in demand caused by the system's reliance on gold, a fixed-supply base money.
Discretion and elastic supply
Over the next several decades, the downsides of using a fixed-supply asset as the foundation for a complex financial system became increasingly evident. No amount of tweaking the financial stack built on that foundation could fix all of the systemic problems that arose. In 1971, due to the concern that the US gold supply was inadequate to cover dollars in circulation, the US decoupled USD from gold, undoing the Bretton Woods Agreement. Unbacked USD became the base money of the US economy.
Fiat-based-monies like the USD have a flexible supply, which is modulated by central banks. Central banks can increase or decrease the money supply—whether by changing interest rates, asset purchases, etc.—to meet their stated policy goals. In the US, the Federal Reserve, for example, seeks price stability and full employment.
However, throughout history, elastic supply almost necessarily implies governance by discretion, not rules. This is because only a fiat money that is not convertible into a fixed-supply asset like precious metals can be issued or removed from circulation with the degree of control needed. The ability of central banks to create or destroy portions of the money supply makes them attractive targets for political pressure or regulatory capture.
Fiat monies have supply flexibility but governance concerns. Monies built on fixed-supply assets have some governance immunity but supply rigidity. This is where the Ampleforth token, APML, fits in; by providing a base money with an elastic supply governed by rules, not discretion.
AMPL was designed to be the most straightforward solution to supply inelasticity, and thus an effective building block for the future of decentralized finance. This is how it works:
AMPL is a decentralized digital currency that automatically adjusts supply daily, based on market conditions. This adjustment is called a rebase. During a rebase, oracles capture the market price of AMPL. Suppose the price is above or below the target price. In that case, the protocol will automatically inflate or deflate the supply of AMPL across all user wallets, universally and proportional to how much AMPL each user owns. In this way, AMPL is non-dilutive, so the percentage of one’s ownership of the network remains fixed through the rebase.
The rebase incentivizes counter-cyclical price pressure, as short term market actors seek to capitalize on perceived value discrepancies. For example, when demand for AMPL increases, and the price climbs above the target price, the protocol automatically inflates the supply during the daily rebase. Since AMPL owners now have more tokens, short-term holders are incentivized to sell their AMPL to capture their sudden value increase. More sellers mean downward price pressure towards the target price, ultimately encouraging structural stability no matter if demand spikes or wanes.
The future of finance is “E-Fi”
The Ampleforth Foundation introduced the AMPL as a rules-based, elastic token that could make unique and innovative contributions as a building block for decentralized finance. Next, the Ampleforth Foundation aims to build out “Elastic Finance,” that is, financial-function protocols that can natively make use of unique elastic assets like AMPL. The roadmap to achieving that goal is expressed here as a stack. The foundation builds vertically up the stack and horizontally across blockchains, creating a cross-chain value highway.
Step One: Liquidity
In order to realize the Ampleforth mission of becoming a new base money used as a building block for the future of finance, there must be low-friction ways of obtaining and using AMPL. The foundation promotes AMPL adoption through its Ecosystem Fund, which supports programs like Ampleforth Geysers. Geysers are smart faucets that incentivize on-chain liquidity. Users receive AMPL for providing liquidity on automated market making platforms (AMMs) like Uniswap. The more liquidity a user provides and the longer the timeframe supplied, the more significant share of the AMPL pool you receive.
Step Two: Lending
Lending and borrowing are fundamental needs in any financial stack, including a decentralized, elastic one. AMPL exhibits unique properties that make it an attractive asset for these use cases. For example, debts can be denominated in AMPL so that their real value remains relatively stable. This allows protocols to natively and in a decentralized manner, place the exchange-rate risk with the lender, not the borrower.
Step Three: Derivatives
Healthy money markets benefit from access to futures contracts and insurance contracts. The Elastic Finance Stack would not be complete without on-chain versions, purpose-built for elastic tokens like the AMPL.
Ampleforth is committed to the long-term vision of creating tools for the future of decentralized finance. That began with releasing the AMPL, the world’s first elastic, digital token, and continues as the foundation builds up the Elastic Finance Stack and across chains.