Ampleforth Surfs the Defi Wave as Demand for Innovative Tokens Soars

As the defi boom continues, propelled by yield farming and an array of lending, derivative, and exchange platforms, one notable beneficiary has been Ampleforth, a blockchain platform built to act as the base currency for the rapidly developing smart economy. Off the back of integration with Zerion, Ampleforth has amassed over $7.5 million in deposits while the value of AMPL has risen by over 30%.

So what the hell is Ampleforth, and what distinguishes it from flash-in-the-pan projects that have become de rigueur in defi?

24-hour performance of AMPL. Image c/o Coincodex.

An Elastic Blockchain

In some ways, Ampleforth is similar to a stablecoin, with a protocol that seeks to minimize volatility and an adjustable supply. Comparisons to Bitcoin are also fitting, however, since AMPL can be used as a unit of payment, as well as collateral for defi.

To achieve its aims, Ampleforth introduces the concept of an oracle-set elastic supply, which sees the total supply of AMPLs fluctuate each day based on market price action. In other words, users get the benefit of a synthetic, commodity-money akin to BTC, but with a degree of fiat’s supply elasticity and liquidity. 

If that sounds like an on-chain version of the Fed, your fears are unfounded. While the first beneficiaries of brrrr’ing money printers are the banks, Ampleforth’s rules-based protocol advantages token-holders, who are encouraged to sell their AMPLs to the market. In this sense, Ampleforth has ambitions of becoming a decentralized version of the Federal Reserve, built for the people. One that cannot be censored or diluted, is based entirely on sound money principles and which could potentially be used to denominate complex contracts (unlike more volatile cryptos).

Price Stability? How?

To achieve an approximation of stability, Ampleforth’s elastic supply mechanism kicks in every 24 hours, with automatic, market-based adjustments to total supply returning the unit value of AMPL back to $1 (CPI 2019). This process – known as a rebase – occurs like clockwork, with the total supply increasing (positive rebase) if AMPL is valued above $1, or decreasing (negative rebase) if it drops below $1.

For example, if the price of AMPL increases to $2, the supply is doubled, theoretically reducing the perceived value of each AMPL to ~$1. This means anyone holding 1,000 AMPLs will then have 2,000 post-rebase. Conversely, if AMPL drops to $0.50, the supply will be halved – cutting a 1,000 AMPL position down to 500 AMPL. 

Because the change occurs for all AMPL holders, everyone retains their relative proportion of the total supply. As such, anyone holding 1% of all AMPL tokens before a rebase will hold the same proportion afterwards; only the absolute number of tokens will change. 

It’s worth reiterating that the rebase process only alters the supply – it doesn’t directly modify the price of AMPL. Instead, the appreciation or depreciation of the token is a result of changes in supply and demand, as an increase in supply should provoke an uptick in selling pressure, while a decrease should cause an increase in buying pressure. 

Overall, this dynamic tends to push the value of AMPL back towards the CPI price, except during periods where rampant demand prevents a rebase from pushing down. 

How Traders Are Profiting

Although Ampleforth was designed to provide a viable alternative to inelastic blockchain platforms like Bitcoin, savvy traders have already started taking advantage of its unique supply adjustment mechanism to net impressive returns. That should surprise no one.

In recent weeks, the cryptocurrency has seen its value steadily climb due to a dramatic surge in interest following Ampleforth’s launch of Geyser – a liquidity dApp that helped boost trading volumes for the token. This has seen the price of AMPL climb from a low of $1.01 on June 23 up to $1.66 today. A new farming update, meanwhile, lets users add liquidity to Uniswap’s AMPL pool with a single asset, with ETH/AMPL liquidity having already surpassed $10m – making it the #1 pool on UniSwap v2.

During this time, supply has also increased considerably, as the protocol automatically increased the number of tokens held to turn the tables of supply and demand towards increased supply. Due to surging interest in AMPL, the protocol has so far been unable to return the price to $1.

As a result, those who held AMPL on June 23 and hodled till now have racked up significant profits, since the total number of tokens they now hold has increased, while the price of AMPL has also almost doubled. This is due to the nature of compound interest: a 5% positive rebase for 14 days would double the number of tokens held, and since each token has also doubled in value, this is the equivalent of 300% profit in just 14 days. 

Defi Building Block or a Better BTC?

Compared to other profit-yielding projects like Compound, Nuo, and Synthetix, Ampleforth has managed to generate handsome returns for recent investors, due in large part to its recent meteoric growth. However, with a market capitalization of just $110 million, it remains a small-cap cryptocurrency, with potential for significant further growth. If that’s the case, those buying now could stand to make generous returns providing they’re able to hold through several rebase periods to enjoy compounding returns.

Ampleforth is nothing if not ambitious. Not only does it have designs of becoming a decentralized, apolitical Federal Reserve, but it sees its medium-term utility as a defi building block – and its longer-term status as a better, more shockproof Bitcoin. While such aims are lofty, AMPL will need to first establish its price stability in the coming months, maintain demand and build a mountain of liquidity. We’ll be watching its journy with interest.

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