Ampleforth: The People’s Decentralized Crypto Reserve

This is a condensed and slightly edited version of a popular Twitter thread I published in July 2020 focusing on AMPL fundamentals.

What is AMPL? If BTC is a Store of Value, and ETH is Digital Oil, then AMPL is the People’s Decentralized Crypto Reserve

Here’s why.

There’s a lot of confusion and misunderstanding about the $AMPL protocol. Is it a scam? No. Is it Bitconnect 2.0? No. Is it a Ponzi? No. If it’s not all those things, what is it?

Here’s the narrative: In my opinion, the Ampleforth protocol is aiming to be the People’s Decentralized Crypto Reserve.

A Brief History of Crypto

To comprehend why $AMPL can play an important role in the ecosystem, and become the People’s Decentralized Crypto Reserve, it’s important to review a bit of history.

Crypto, up until this point can be divided into the following eras:

Crypto Pre-history: The Cypherpunk Age. Cypherpunks like David Chaum describe the history of things to come: Digital currencies, the fight for privacy and more.

Crypto Era 1 – The rise of Bitcoin. Bitcoin is created and technologists dabble in the technology. Eventually more and more people become interested in blockchain tech. The Occupy Wall Street Movement and the aftershocks of the 2008 financial crisis fuel the Bitcoin revolution.

Crypto Era 2 – The rise of Decentralized Computing (Ethereum): We all know the story, Ethereum is created and a distributed, decentralized computer, the Ethereum Virtual Machine, gives rise to thousands of tokens and expands the crypto ecosystem virtually overnight. ICOs and Bitcoin’s rapid price rise lead to a crypto frenzy and the market reaches new heights.

Crypto Era 3 – Crypto Bust and Creating a New Foundation: The crypto market craters, many people leave the industry and developers hunker down to build products, many of them in finance.

Maker launches over-collateralized lending and Bancor helps usher in automated market making. All of this work helps build the foundation of the new DeFi movement.

Crypto Era 4 (Present Day) – The Search for Yield and Crypto’s Liquidity Crisis: DeFi is utterly transforming how crypto natives use and view crypto assets.

In previous eras, they were content to HODL and wait for their assets to appreciate. With the rise of the DeFi movement, people longer have to do this. Previously idle crypto capital can be lent, borrowed and leveraged without the need to sell.

We are in a phase of the crypto movement I call the Search for Yield. Part of this search involves using stablecoins to escape the volatile crypto market, preserve capital and generate passive income.

But the Search for Yield has had a negative side effect: A liquidity crisis.

The crypto liquidity crisis may not be obvious to many, but it is demonstrated best in Maker Dao’s struggle to keep Dai at its peg. The rise of yield farming has led to crypto users borrowing Dai at incredible rates in order to chase alpha.

Maker has added additional assets, including WBTC which is in high demand. The printers at Tether and USDC are going at full force. But the demand for liquidity is outstripping supply and the most popular stablecoins have serious problems.

Tether is on shaky legal ground. USDC is useful, but it censors transactions, which goes against the Cypherpunk ethos. Dai struggles to stay-on peg and it’s hard to convince users to take loans, which are required to generate Dai.

This liquidity criss needs to be solved if crypto is going to grow into a trillion dollar asset class.

Why Not Rely on Ether and Other Assets to Solve the Liquidity Crisis?

Some say Ether can play this role (along with Dai), but the main issue with generating Dai is that it requires Ether holders to take loans out on their crypto. Not everyone wants to do this. Also, Ether’s value growth requires a successful transition to Eth 2.0, which is far from certain.

Ether could grow in value to fuel the ecosystem, but the market is uncertain about whether it should be looked as anything more but (cheap) fuel for the network.

Wrapped BTC such as renBTC and WBTC can satisfy some of the demand for liquidity, but again, it’s a slow process to port over BTC value from the Bitcoin chain.

A New Asset … a New Crypto Primitive is Required

What’s needed is a new asset. Most importantly:

  • It must scale with the growth of the crypto market
  • It must be uncensorable
  • It must be relatively stable
  • It must be based on sound money principals

At present, AMPL meets 3 out of 4 of these criteria. But, its value is not yet stable. And to gain stability, it must scale.

AMPL could be THE asset for crypto’s Search for Yield Era.

What is the Ampleforth Protocol?

History lesson over. So what is the Ampleforth Protocol?

In simple terms, AMPL is a protocol that can serve as crypto’s Federal Reserve. Here’s how the Fed works (basically). Currently, the US dollar is the world’s de-facto global currency. Debt, contracts, stocks, bonds … everything — is dominated in dollars. It’s the world’s most trusted currency (for the moment).

This reliance on the dollar has led to a problem: There may not be enough dollars to satisfy demand. And, without enough dollars the global financial system would seize up. Ordinarily the rush to the dollar (and reliance on it) would cause the value of the dollar to skyrocket against other currencies.

That would cause a lot of problems, so the US Federal Reserve has printed trillions of dollars to inject liquidity into the market to satisfy global demand.

The Ampleforth protocol can be viewed as an automated Federal Reserve.

It is a scalable synthetic currency that is not backed by collateral, only itself, a primitive like Ethereum and BTC. Like the Federal Reserve, the protocol expands when demand is high, and contracts when demand is low.

But, there’s a crucial difference: When the Federal Reserve prints dollars the first beneficiaries are banks. And, what do bankers do when they get money? They invest it into stocks, bonds and other assets.

The Federal Reserve’s money printing has led to an asset bubble where stocks do nothing but go up.

As I mentioned before, the Ampleforth protocol has the ability to inject liquidity into the crypto ecosystem when demand it is high, and remove liquidity when demand is low. This is all achieved in a rules-based, automated fashion with no human and political intervention.

And, unlike the Federal Reserve and bankers, the extra liquidity generated by the protocol (in response to demand) is given directly to AMPL holders who are encouraged by the protocol’s rules to sell their tokens to the market

But, AMPL can’t serve as the People’s Decentralized Crypto Reserve unless the token has massive liquidity, to the tune of billions of tokens.

So, the team has launched liquidity initiatives in order to encourage crypto natives to help grow AMPL’s presence on decentralized exchanges and help the token reach the scale needed to be used in DeFi protocols (through demand-fueled price inflation).

And, demand for AMPL is high. The AMPL/WETH liquidity pool is currently Uniswap’s largest, and is generating huge fees for liquidity providers.

Right now, like Bitcoin, AMPL is very volatile. This is because the market cap for the token is low.

And, because AMPL delivers liquidity to token holders rather than bankers, people have gotten distracted from AMPL’s true purpose: Becoming a Decentralized Crypto Reserve.

There is No Free Lunch

So, what’s up with this “free crypto” that people are so excited about? Think about it in the terms of price appreciation. When Bitcoin’s price rises, all token holders benefit from higher USD prices.

With AMPL, when demand is high (people want to buy the token), instead of price skyrocketing (because of the protocol’s focus on keeping the price of the AMPL token relatively stable), the token’s supply is inflated.

So, capital injected into the protocol does not increase the price,* it increases the supply*.

But in order for this to happen, demand must be present. These are not “free” tokens, because demand energy is channeled away from price appreciation toward supply appreciation.

Here’s another way to look at it: holding AMPL is no different from owning Bitcoin when it rose from $1,000 to $10,000. But, instead of price gains, holders enjoy supply gains.

The AMPL protocol is only re-directing capital’s energy from spiking the price (which only helps holders), to increasing the token supply (which can help redistribute capital to other sectors of the crypto economy).

This is just like capital provided by the Federal Reserve is expected to go from banks to other sectors of the US economy.

The plan is for the AMPL token to reach a large enough size to be integrated into exchanges, lending products, etc.

And the team has launched liquidity initiatives, that are no different (in spirit) from other bootstrapping efforts, to do so.

Bringing it All Together

So to sum up:

What is AMPL aiming to become?: The People’s Decentralized Crypto Reserve that can solve crypto’s liquidity crisis with a non-censorable, sound (non-dillutable) currency.

What is the end goal?: To replace Tether printing with AMPL printing.

Why is supply inflated?: When demand is high, instead of encouraging holders to hoard tokens, which leads to supply shocks, they are encouraged to sell surplus AMPL for crypto assets that can be then re-directed to other parts of the crypto economy rather than being stuck in wallets s non-productive capital.

As you can see, AMPL is NOT a Bitconnect promising unsustainable ponzi-like gains. The Ampleforth Protocol is aiming to be the People’s Decentralized Crypto Reserve. The perfect asset for the Search for Yield Era. And, to do that it must grow a lot bigger. This needed growth is happening as we speak.

Note: Bringing this vision to life is a big reason I decided to co-found the AmpleSense DAO.

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