Ampleforth: An Algorithmic Rebase Cryptocurrency

Summary

While asset-backed and crypto-collateralized stablecoins represent a pillar of the digital economy, algorithmically driven assets like Ampleforth are emerging with a more decentralized approach that is less reflective of legacy financial processes. Ampleforth’s AMPL currency maintains price stability with a flexible supply. It achieves this via a process of rebasing — which adjusts the supply of AMPL on a daily basis, providing more price stability than fixed-supply cryptocurrencies.

Contents

Is AMPL a Stablecoin?

Stablecoins are a form of crypto asset designed to maintain a particular price. Most often this means keeping parity with the U.S. dollar or another fiat currency, but can also refer to cryptocurrencies built to maintain a more general level of stability as well. The mechanisms used to ensure price stability differ across the stablecoin ecosystem. Stablecoins like U.S. Dollar Coin (USDC) and Gemini Dollar (GUSD) are backed by audited holdings of U.S. dollars. Crypto assets like PAX Gold (PAXG) are another type of asset-backed stablecoin that represents physical commodities — in this case gold.

The Ampleforth Stable Monetary Policy

Almost every nation uses a central bank to manage economic health. Central banks achieve this by pulling the levers of fiscal and monetary policy to minimize the impact of economic cycles. In general, fiscal policy refers to government spending and taxation policies. In contrast, monetary policy refers to central bank actions that determine borrowing costs and the money supply. In the absence of government spending and taxation in the decentralized ecosystem, monetary policy is a guiding principle for algorithmic stablecoins.

The Three States of AMPL

Although algorithmic stablecoins use supply-regulating mechanisms, Ampleforth is unique because its overall supply remains elastic. As a result, ownership of AMPL tokens is never diluted, resulting in a supply of Ampleforth stablecoins that persists in three states:

  • Expanding Supply: If the price of AMPL exceeds $1, more tokens are released into the economy, decreasing the value of each token.
  • Contracting Supply: If the price of AMPL falls below $1, tokens are taken out of circulation to increase each token’s value.
  • Equilibrium: In a state of equilibrium, the economy is in balance, and the price of 1 AMPL is exactly $1.

Ampleforth Protocol Stable Contracts

AMPL daily supply adjustments are known as rebases, and are managed by smart contracts. Because the Ampleforth network maintains supply elasticity and protects against dilution to stabilize AMPL’s value, it is appropriate for use in stable contracts. The platform refers to stable contracts as those denominated in a crypto asset with predictable value.

Ampleforth vs. Stablecoins

Despite the assertion that AMPL functions as a stablecoin, some may question how the crypto asset is different from BTC and other fixed-supply assets if their wallet holdings fluctuate. Others might also question why AMPL is a more desirable asset than alternative stablecoins like DAI, GUSD, or PAXG. In short, the answer relates to the ethos of decentralization and the desire to create a financial ecosystem that remains beyond the reach of political influence and reliance on government-backed fiat currency.

Ampleforth Use Cases

The Ampleforth protocol occupies a unique niche in the crypto ecosystem, one that may very well grow significantly in time. Because the AMPL token is less correlated to the price of crypto assets like BTC and ether (ETH), investors can use it to diversify or hedge cryptocurrency portfolios. Further, the AMPL token is an efficient, stable form of collateral for use in decentralized finance (DeFi) protocols. However, the project team’s primary objective is to establish the Ampleforth protocol as an alternative to fiat-denominated finance.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store