An article on imaginative project AMPL

Original title: depth | an Increase of 4130%? An Interpretation of Imaginative Projects -- AMPL

Original post by Mika Honkasalo

Encryption Valley Live

Abstract

Ampleforth's AMPL is a "flexible price" cryptocurrency that adjusts the supply to demand -- that is, it rises when the price is above $1, and vice versa.

- As of June 1, 2020, AMPL was valued at $7.8 million. Today, it has a market value of $330.5 million (+ 4,130%).

-Ampleforth's elastic supply offers no real functionality beyond cryptocurrencies like Bitcoin. The only difference is where is the volatility (price/supply)?

What is Ampleforth?

Most cryptography tokens act like protocol share ownership, but Ampleforth's AMPL is intended to be a currency. Recently, interest in Ampleforth has increased dramatically. As of June 1, AMPL was valued at $7.8 million. Less than two months later, it was valued at $330.5 million, up 4,130%.

The first exchange offering (IEO) on Bitfinex in June 2019 was AMPL. During the launch, Ampleforth raised $5 million in just 11 seconds, the hard limit of this fundraising. Ampleforth has raised $9.8 million in two rounds of venture funding from investors including Pantera Capital, Arrington XRP Capital, Slow Ventures, FBG Capital, The Spartan Group, and Coinbase CEO Brian Armstrong.

Ampleforth has been described as "a digital currency that adjusts its supply daily to market conditions". When the price of one AMPL exceeds $1, the supply of AMPL increases until the ideal price equilibrium level of $1 is reached. If the PRICE of AMPL falls below $1, the supply will decrease until price parity is restored (to be precise, AMPL is targeting a CPI adjusted dollar price in 2019, from $1.009 currently).

Source: Coingecko Coingecko

In practice, this effect is relatively smooth and is adjusted every 24 hours. The agreement automatically adjusts 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 the DOLLAR. For example, when the price of AMPL rises to $1.10, the supply will adjust (10/10)% or 1%.

Supply adjustments are achieved by increasing or decreasing the amount of AMPL held in each wallet. This is important because it means that the value held by the user fluctuates according to the market value of AMPL.

If a user holds 100 AMPL in their wallet for a total value of $100, and the market value of AMPL increases by 50%, then the user holds $150 OF AMPL, which is worth $1.50 per AMPL. After the supply adjustment, users still hold $150 worth of AMPL, but the number of AMPL they hold increases to 150.

Source: The Block Research

A common misconception among users is:The purpose of AMPL is stability, that is, it is a stability coin of some kind.It's worth noting that while Ampleforth has marketed itself in the past as a stability coin (which may have something to do with the early design of the system),But the team later made it clear that AMPL is not a stability coin.

The amount of money a user holds still fluctuates because there is not much of a difference between keeping prices stable and keeping units stable. If all users experience growth and contraction at the same rate, there is no change in supply at all.

Changing the amount of supply that users hold in response to price changes is an accounting device. If the supply of bitcoins doubles every time the price doubles, matching a single bitcoin to the cost of buying it on a daily basis (between $1 and $1,000), that won't actually affect the scarcity feature.

The scarcity of bitcoin is at a system level, and no matter how many bitcoins you slice, it doesn't make the amount bigger or smaller.

What was Ampleforth designed to do?

According to Ampleforth's developers, the system has two main benefits:

- Encourage a stable unit price

- It employs counter-cyclical pressure. This means that AMPL dynamics limit price declines if prices fall, and vice versa.

The first is fine, because it works if you want to shift volatility from prices to supply. If the supply of bitcoins in each wallet doubles as the price doubles, the unit price stays relatively stable.

The supply can be adjusted for any reason.Polkadot, for example, is planning to redefine the denomination of DOT tokens with either a 100-fold or 1,000-fold split. The reason for this is that it reduces the need for decimals and improves readability. The psychological benefit is that people can now afford an entire DOT token. But all it does is increase speculation by users who don't understand, because the redenomination does nothing to change Polkadot's value.

But does the second make sense: is there any economic use in shifting volatility from price to supply?

Ampleforth's main argument for counter-cyclical behavior is that when prices rise, the incentive to sell increases, and when AMPL prices fall, the incentive to buy increases. This creates an arbitrage opportunity for fast traders to make a profit before the market price of AMPL has adjusted.

Some argue that this dynamic makes AMPL a useful hedging tool in cryptocurrency portfolios, as cryptocurrencies are usually correlated, and when cryptocurrency prices fall, AMPL prices rise as THE price of AMPL returns to equilibrium. In addition, this could help AMPL become a very useful type of collateral in systems such as MakerDAO because it can offset declines in collateral such as ETH. In addition, AMPL aims to offset runaway inflation and deflation through supply adjustments.

Ampleforth illustrates this point through the reactions of both "slow" (holder) and "fast" (speculator) traders to changes in price and supply. The following table shows "the counter-cyclical logic of Ampleforth".

Source: Ampleforth Red Book

In the above expansion example, when the price of one AMPL reaches $1.2 (the user's holding value is $1× $1.2 = $1.2), at the moment of supply adjustment, Alice and Bob become holding 1.2 AMPL (the user's holding value is now $1.2× $1.2 = $1.44), but the price remains at $1.2. Since supply will increase, there will be an incentive to sell above $1 until AMPL prices return to equilibrium. This creates a counter-periodic pressure.

Ampleforth describes this behavior as follows:After the market capitalization exceeds the expected value after adjusting for supply, the arbitragee makes a profit before the price returns to equilibrium (when 1 AMPL equals 1 dollar).

Source: Ampleforth Red Book

The problem with this logic is that there is no reason why the underlying assumption is correct - when you increase supply, there is an arbitrage opportunity. Increasing or reducing supply is equivalent to a stock split, and that 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 any given moment.

For example, if the company made a stock split and double the number of shares, in apple's market capitalisation double moments later, no one would think that "rapid" traders have before the return to the correct price arbitrage opportunities. If we make the process a little more complicated, let apple's stock price target is $1 forever, that there will be no arbitrage opportunities.

If this re-targeting approach were implemented, Apple's stock would not be considered a countercyclical financial instrument. If bitcoin bifurcated into two versions, bitcoin and AMPL (which are identical except for shifting price fluctuations to supply),But the market is likely to assume that the two products are the same, and that the combination of the two does not reduce any risk.

Source: The Block Research

If we use AMPL as collateral to create a MakerDAO pool of money, and the overall cryptocurrency price falls, AMPL will not act as counter-cyclical collateral.If the price of AMPL falls, the supply of AMPL will also decrease in order to maintain the price peg, but the total value of the lock will not change. If there is an arbitrage between the supply adjustment and the price adjustment, that in effect means MakerDAO's fund will be liquidated in a bad case. In the above table, if we consider this arbitrage opportunity, the value of AMPL in the pool is suddenly only $50.

If Ampleforth has no countercyclical effect, that means it will not in any way offset runaway inflation or deflation. This makes sense, because when AMPL's market value increases or decreases, the only change that happens is cosmetic -- that is, the way the pie is split changes, but virtually nothing changes.

Currently, AMPL costs $2.50, which is unscientific from the analysis above, as prices should be adjusted immediately. Nor does it make sense from an arbitrage opportunity point of view, since holders can easily get a 150% free return if they sell their tokens now. As for why this is happening, we suspect that investors who don't know how Ampleforth works are excited to see the value of their tokens increase in parallel with the corresponding dollar value. If that's the case,This should also be a double-edged sword, because when the selling begins, people will lose both the tokens and their value.

It seems that the counter-cyclical pressure Ampleforth brings is at best a psychological comfort, and there is little economic reason to believe it will reduce volatility or act in a counter-cyclical manner on any other cryptocurrency. Ampleforth's documentation is full of enigmatic analogies, likening himself to thermal expansion and vaguely referencing popular mainstream economic concepts (think fast and Slow, Daniel Kahneman) --But at the end of the day it's just a simple system about volatility.

Text link:https://mp.weixin.qq.com

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