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.
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).
- 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.
- DAO Approval and Funding: 1 – 1.5 months
- Smart Contract Development, Testing and Front End Development: 1 – 2.5 Months
Due to sustained negative rebases, I was thinking of an instrument that could counter-act the erosion of value through something simple. But I like the idea of wAMPL because it has multiple protective and proposed “rebalancing” mechanisms.
In addition to ETH, what about adding a basket of assets such as tokenized BTC, some pre-determined (or adjustable) percentage allocation of stablecoins, and perhaps some inverse financial instruments such as iBTC/iETH? Could also consider DeFi+ ETF tokens.
The idea is to diversify and reduce the risk of default and losses incurred by kAMPL holders.
Another advantage of products like wAMPL is that it could motivate the introduction of financial instruments like Perpetuals, but made specifically for Elastic Finance.
More products could attract liquidity, and in turn lead to a robust and healthy AMPL eco-system.