Idea summary
Ample is an especially challenging asset for holders at this stage of its lifecycle. While the medium and long-term potential of Ample is bright, until the asset gains more steady, organic demand, it will continue to fluctuate around its “peg” and spend periods of time in both positive and negative rebase cycles, which has benefits and drawbacks for investors.
Mature financial ecosystems feature numerous products that provide options to invest in, speculate on, or use assets in ways that reduce the risk of capital loss. The Ampleforth Ecosystem currently lacks products such as these.
Also, Ample’s ability to organically increase its liquidity has not yet been fully appreciated or maximized in decentralized financial products. This is because Ample is not yet being used a fundamental part of a DeFi/Elastic Finance protocols in ways that take advantage of its unique strengths.
Wrapped Ample (wAMPL): A New Representative Money
Representative money has a long history in economics. For example, for about a century in the United States, silver certificates were issued, which gave the bearer the right to claim a certain amount of silver upon presenting the dollar at a bank. Representative monies are paired with commodity monies because they can be exchanged for the commodity (such as gold or silver).
Ample is a digital commodity money and is thus an very appropriate asset to pair with a representative money.
wAMPL would be a form of representative money that always entitles the bearer to claim a certain amount of AMPL, in this case 1 wAMPL = 100 AMPLs.
But, unlike physical representative monies, wAMPL would have an additional benefit: Because the asset is backed by an expansionary elastic currency (AMPL), wAMPLs would also produce passive income for holders. Also, AMPL sold during positive rebases would help to maintain the wAMPL system.
This presentation (click here to download) provides more information about how wAMPLs would work. In summary:
- AMPL holders would exchange 100 AMPLs for 1 wAMPL. Their AMPL would be locked in a smart contract and redeemable by anyone holding wAMPL token (wAMPL would be a tradable asset)
- Holders can be confident that the value of 1 wAMPL will never go below 100 AMPL because various mechanisms would be used to defend wAMPL’s peg, including:
- A percentage of surplus AMPL generated during positive rebases would be sold for ETH: If necessary, this ETH reserve would automatically be sold for AMPL to maintain the 1 wAMPL to 100 AMPL ratio
- Extra AMPL generated during positive rebases would be held in reserve to be depleted during negative rebases to reduce the likelihood that reserve ETH would be sold
- Holders of kMPL, the AmpleSense DAO’s upcoming multi-use asset would serve as a backstop for wAMPL’s value, meaning that a percentage of kMPL staked in contracts would be sold for AMPL if necessary to maintain the 100 AMPL to 1 wAMPL ratio. (kMPL holders would receive ETH rewards for providing this service.)
The wAMPL protocol would generate benefits for each participant in the system:
- wAMPL holders would be able to invest in AMPL with little downside (negative rebase risk). Their capital (in AMPL terms) would be preserved. They would also benefit from positive rebases because a percentage of ETH gained during positive rebases would be allocated to each wAMPL holder providing them with passive income and making the wAMPL’s true value 100 AMPL + ETH claimable by wAMPL holders
- kMPL holders staking in the system would receive ETH rewards in exchange for helping to crate a strong foundation for the system
It is also likely that wAMPL would be utilized across DeFI protocols, creating other opportunities for holders to benefit from lending, borrowing and trading — all while maintaining exposure to AMPL in a risk-minimized fashion.
The process of minting wAMPL would also drive organic demand for AMPL, and lock up more of the currency, which could lead to longer periods of expansion, benefiting Ample holders.
Idea implementation/execution:
The system would have the following components:
- Contracts required to mint wAMPL and lock AMPL in reserve for wAMPL holders to redeem
- A trustless accounting system that would keep track of the global ETH rewards claimable by wAMPL holders
- A rules based system that determines how much AMPL to sell during positive rebases, depending on the rebase amount
- A staking system that allows kMPL holders to earn rewards from backing wAMPL while not giving up other privileges of holding kMPL
- Sufficient ETH liquidity in the system to bootstrap it if it were launched during a negative Ample rebase cycle
For more information about the system design, please download this presentation (click here).
Budget/cost:
- Estimated smart contract development fee: $7,000 – $12,000
- Estimated audit fee: $9,000 – $14,000
- ETH to capitalize the system if launched during a negative rebase cycle: TBD
Examples of similar ideas: The wAMPL system has similarities to MakerDAO (in terms of kMPL holders serving as the ultimate backstop of the system) and cDAI, aDAI, which provide owners with interest income and are tradable. It is likely that we would look these systems while developing the smart contracts.
Idea Timeline:
- DAO Approval and Funding: 1 – 1.5 months
- Smart Contract Development, Testing and Front End Development: 1 – 2.5 Months
Thank you for your reply. I get the idea.
I have another question, why use eth and not usdc(stable coin)?
A couple of reasons:
1. Eth is non-censorable
2. Potential for price appreciation with Eth
- very cool idea I would be for it.. so sort of like an AAVE a token.. and we would be earning interest on it?
Thanks!
Yes. wAMPL would not rebase. But the AMPL held in the wAMPL smart contract would.
So, as the AMPL in the contract experiences positive rebases, a portion are sold for ETH. That ETH is distributed to all wAMPL protocol stakeholders, including wAMPL holders. The easiest approach is to have a global accounting system that keeps track of all wAMPL rewards and distributes them when claimed by holders.
This is similar to how UNI tokens are being distributed right now.
So, the true valuation of the wAMPL token is not 100 AMPL, it would be 100 AMPL + ETH rewards for the token.
Sounds too good to be true for those who only care about dollar value of their AMPLs and not percentage share of market share. how long until a vote is made available for this idea and if passed, how long until implemented?
The next step is for this to be turned into an AmpleSense Progress Proposal, which would be officially voted on by the community. The main question to answer is making sure that the system is robust enough to weather extended negative rebase periods. So the proposal will have to answer this question to the satisfaction of the community.
After ratification by the DAO Founders (I’m one of them), I expect work would begin immediately (i’ve already sussed out the technical details). A timeline would be communicated after approval and funding by the DAO. An estimated time frame is in the idea proposal.
Thanks for explaining the process. I look forward to see how it plays out and hope it will be robust enough to work.
Awesome!
I am sure it will work well.
Please look at this watermelon with many rind:)
https://docs.google.com/spreadsheets/d/1TL90uKCQoKbgUm1Sblu34CHvGWnzEhD6OtiDdoyi6t8/edit#gid=1513529244
Wouldnt you dilute yourself if you bought during expansion periods? Let’s say you buy at 100m mcap then mcap becomes 200m. The 100 ampl you used expanded and became 200 ampl but you can only redeem back for 100. Also during retraction periods, you would get a better position if you bought this when ampl mcap is high. But for that use case why use wampl when you can sell at high mcap for tether or usdc for example and then redeem it back for more ampl after contraction is done.
My suggestion to make this idea better would be to make a token that represents a percentage of the ampl supply. That can be redeemed automatically via smart contract and vice versa that doesn’t reabse. Like ren btc. Lets say my theoretical token has like 10k supply. Each of them would represent 0.01% of the total ampl supply. It would be able to be redeemed both ways. Like to buy one you pay whatever 0.01% of the ampl supply is in ampl and lock it up. And vice versa you can redeem it for 0.01% of the ampl supply back. The locked up ampl for my theoretical token would continue to rebase. This alternative would remove the rebase and make it easier for newbies to understand the value of their holdings. It would also make taxes easier.
In addition to my suggestion for the token idea I proposed. The price action of that token would be backed by both ampl price and supply. Any difference would be removed by arbitrage. Could be called something like ampl reserve. A token pegged to the ampl mcap. A reserve token backed by an Efi asset.
Thanks for your comment.
I think my experience with people looking at rebases / debases is that the concept of locking in a percentage of supply goes over their heads.
They understand conceptually that their % of the supply never changes. Yet practically, from a capital preservation perspective, it does not matter. If they have spent say $10,000 on AMPL and the supply debases by 50% they are down 50% plus in their investment. They only know: I spent $10,000, i now have $3500 (or less). If they spend $10,000 on wAMPL and redeem, at .73, they’ve only gone down by 30% or so.
In fact wAMPL makes the concept of buying during negative rebases stronger. For example they can buy 100 AMPL at .73 and sell 100 AMPL at 2.25. (But, they are protected from negative rebases.)
More likely, during positive rebases they will hold onto wAMPL for the interest income and watch the price increase by many multiples because of the attractiveness of the asset from a passive income perspective.
So, the wAMPL token is really for those who are interested in investing in AMPL, benefiting from positive rebases, but want that downside protection.
They don’t care about percentage of market share. And we’ve seen that message really not resonate with many investors. They care about capital preservation and profit generation.
Say AMPL goes from 1.45 when they purchase the token to .73. Well, the price of wAMPL may not decline much due to the interest that is accrued or has accrued to holders. In some respects, it could actually be an uncorrelated asset to AMPL, which is interesting also.
Also from a smart contract development perspective, and practically, I don’t see a simple way to let someone buy a % of market cap.
So this is simpler message to someone interested in investing in AMPL, but with little interest in preserving their % of the market share. For people interested in gaining more market share, they would simply hold naked AMPL.
This product would be for those individuals that want some upside benefit, but protection against the downside loss.
And from a communication perspective, the message is simple: buy wAMPL for 100 AMPLs. No negative rebase, gain interest over time.
Simple, attractive, noob friendly.
Very interesting ideas guys, I agree about reducing the complexity of the ‘Tokenomics’ of Ampl in some way, it’s not that it’s that hard to understand, but most people still think in ‘real’ money, ie £ and pence, so anything that brings them closer to that would encourage those types of investors. So my investment was worth x, now it’s worth 5x, or 0.7x ?.
Just a off the cuff remark, haven’t given it a huge amout of thought yet, but even a sA (stable Ample) tied to wA or Ampl, but worth something much more stable (eg 0.01 ETH), might be interesting. Like a ‘reward’ for holding a certain amout of A or wA.
I find wAMPL rather confusing and also risky.
It is confusing because it is not directly clear what is seeks to achieve. I understand that wAMPL is supposed to be less risky because it guarantees the quantity of AMPL it can be exchanged. But it is still risky because wAMPL itself is still fluctuates in price. The value proposition for wAMPL seems to be just another instrument for traders to trade and for holders to earn ETH rewards. Is there any mechanism that would further the use case of AMPL that I could be missing out? Are there other use cases planned for wAMPL?
I also find it risky because there is an additional wAMPL to AMPL peg of 1:100 that needs to be maintained. During negative rebase, there would be insufficient AMPL to back wAMPL, AMPL holders may even want to mint more wAMPL to maintain the quantity of AMPL they have. This could lead to a death spiral, what happens if this peg were to break and there is not enough ETH left to maintain the peg? It feels like wAMPL may be more of a destabilising force than a stabilising one.
Thanks for your comments.
1. Regarding the use case for wAMPL, it’s primary use case is as a hedging instrument against Ample during this stage of its development (demand uneven, speculation is the dominant use case). Hedging instruments have a long history in finance and a healthy Ample ecosystem needs one.
2. Regarding benefits for the ecosystem, it could actually accelerate demand for Ampl, given that holders would be able to rebalance into an asset that uses Ampl as a unit of account and guarantees the number of Amples they hold won’t decline.
3. You are correct that the biggest risk to the system is a situation where demand for wAMPL is high and the system can’t sustain the minting of additional wAMPL during a Ample down cycle without being under-resourced (i.e., unable to meet its obligations).
This is where the kMPL backstop comes in. Similar to Maker’s system, where MKR holders are the backstop for the system, wAMPL’s ultimate backstop is kMPL holders. It would be pretty simple to create a mechanism where the system has a “Redemption Ratio”, where there always must be, for example, 2x the amount of AMPL in the system to redeem all deposits, if there was a run on wAMPL.
kMPL holders could vote to adjust this “Redemption Ratio” over time. This means that there would be no additional minting of wAMPL if the Redemption Ratio is not healthy.
So overall:
-Primary use case: Ample hedging instrument
-Benefit for ecosystem: Increased Ampl demand to mint wAMPL, interesting asset that could be held alongside AMPL that is less coorelated to AMPL
-How to prevent death spiral? Create a system where system health determines ability to mint wAMPL
How about turning wAMPL into a debt instrument? Instead of locking up the AMPL, a user mints wAMPL when he/she lends out AMPL (most probably into a lending pool). wAMPL becomes a bond token that symbolises a fixed amount of AMPL that can be redeemed plus interest to be paid out by a borrower.
In this scenario, wAMPL continues to be a hedging instrument plus earning AMPL. There is an intrinsic incentive for borrowers of AMPL to back wAMPL with more AMPL during negative rebase essentially because it is cheaper for them to repay their debt (assuming at the point of their loan, borrowers directly swap AMPL for stablecoin such as DAI)
I think this has an added benefit of stabilising AMPL’s price. AMPL price go down, borrowers will buy AMPL to repay debt while lenders preserve value of their holdings by locking up AMPL to mint wAMPL (i.e. supply decreases while demand increases which has the effect of driving price up). AMPL price go up, there is an incentive to borrow AMPL and sell for stablecoin since positive rebases will drive price down sooner or later
I am guessing the market incentives plus the interest earnings will probably reduce the probability of an ETH buyback or backstop by kMPL holders. In the worst case scenario, the lending pool is not utilised at all, then an ETH buyback or backstop by kMPL will be required during negative rebases.
I think this is a really interesting idea. My biggest concern about wAMPL is the issue of preventing a negative spiral for the asset during long negative rebase periods and also preserving the solvency of the system. I’ll be thinking about this more as I think about out how to revise this proposal to reduce the odds that kMPL holders will have to backstop the system and also people taking advantage of the system.
The 100A quantity is for efficiency and cost reasons.
The minting cost (gas) will be the same whether you mint 100 or 1. Higher value transactions tend to be worth the gas versus lower value transactions.
Also, from a claiming perspective (ETH rewards), they will accrue faster with higher amounts of AMPL backing wAMPL.
We could have different denominations though 1 wAMPL, 10 wAMPL 100 wAMPL, to make the process even more efficient.