Is There a Credible Bull Case for Ample and Other Elastic Finance Assets?

This post was inspired by Mick de Graaf at PieDAO who asked a very good question about Ample and other elastic finance assets in the #DeFi Telegram channel: “I still don’t get why you would hold AMPL though. What is its benefit compared to ETH for example?”

This is a question a lot of people have about Ampleforth — and other elastic finance assets. Currently, the price of these assets is extremely volatile. And because elastic assets like Ample are price-sensitive, the supply of these tokens fluctuates significantly.

“Negative rebases are no fun. Is there a credible bull case for Ample and other elastic finance assets? Yes.”

Because of this holders of Ample and other elastic finance assets face the risk of significant capital loss due to negative rebases. This means that as demand drops, token supply reduces. Many holders have observed that what was once a $10,000 investment can dwindle to $7,000 — or lower over the span of weeks and months.

As an aside, this capital loss risk is actually no different from someone experiencing a decline in BTC’s price from $10,000 to $3,500. However, practically, price declines associated with elastic assets are exaggerated psychologically. It’s not just that the price is declining, but the token supply is also dwindling which causes holders to experience two forms of negative loss aversion: price and supply.

Outsiders watching this situation often wonder why anyone would want to hold Ample at this stage of its development. Can a credible bull case actually be made for Ample and other elastic finance assets?

To the surprise of some, the answer to this question is a firm “yes.”

Let’s dig in to learn why.

What’s the Use Case for Ample and Other Elastic Assets?

The first question many have related to Ample has to do with utility. What’s the use case for this asset beyond speculation?

As a reminder, Ample is a new asset in a new sub-sector called Elastic Finance. Elastic assets (Ample is the first) are designed to be supply, rather than price sensitive.

What this means in practice is that (due to rebases) changes in the demand for the token translate into increases and decreases in supply, rather than higher prices.

Are there any benefits associated with elastic finance assets? Yes. Here are a few.

Infinite liquidity: AMPL can respond to surges in demand and not get substantially higher in price. AMPL is designed to float around the 2019 USD. What this means is that AMPL can adjust to supply shocks in ways that other assets, such as DAI cannot, which struggle to stay “on-peg”.

“Ampleforth and other elastic assets can provide infinite liquidity. No collateral required.”

In the case of DAI, this is currently causing an issue where, for example, DAI which used to be a permissonless asset, has a large percentage of its supply backed by USDC, which is censorable. There’s also the ongoing issue of ensuring these stablecoin assets have enough collateral to back them (which is the reason the Maker Foundation began to accept USDC in the first place.)

Stable units of account: AMPL can also be used for borrowing and lending, especially when it is used as a unit of account. Specifically, a person could borrow 100 AMPLs and be reasonably confident that they will always owe 100 AMPL at about $1.

“Imagine saving $.20 on the dollar on an AMPL loan: Very attractive.”

What does this mean in practice versus borrowing, BTC? Well, one could borrow 1 BTC. But, in order to pay back that BTC, the borrower could either owe $10,000 or $3,500. Not the best situation — unless you were extremely bullish or long on BTC.

Because AMPL floats around $1, despite changes in demand, a borrower would know that they would owe 100 AMPL at about $1 — or even less if demand is lower when they decide to pay back their loan.

Imagine saving $.20 on the dollar on an AMPL loan: very attractive.

The Bull Case for AMPL and Other Elastic Assets

So, why are Ampleforth holders tolerating long periods of negative rebases and capital depreciation?

Many are making the bet that this young asset class — over the next few years — will increase their net worth significantly.

Holders know their percentage of the AMPL network (say .1%) will never change, even though Ample’s supply will increase over time as more use cases come online.

So, one could have .1% of an asset with a total supply of 200 million AMPLs today, but in 5 years, one could have .1% of an asset with a total supply of 200 billion AMPLs.

Some Ampleforth holders are making the bet that a 200,000 AMPL investment could increase 100 – 1,000x in five years.

Here’s a quick calculation for what that would mean for today’s Ample holders:

  • .1% x 200 million in supply = 200,000 AMPL tokens at $1 ($200,000)
  • .1% x 200 billion in supply = 200,000,000 AMPL tokens at $1 ($200 million)

Importantly, given the risks associated with Ample, it’s not guaranteed that significant supply increases will occur, but this is the fundamental bull case for Ample and other elastic assets. Demand must increase, because use cases will increase.

Put another way, here’s the bull case for Ampleforth (and other elastic assets):

As the use cases for Ample expand, the token supply will increase to meet these new sources of demand.

Because my percentage of the Ampleforth network never changes, I could benefit from supply expansions in the future.

My risk-benefit analysis: Short-term declines in the token supply (and my capital) due to negative rebases, are less important than long-term (potential exponential) increases in supply due to new uses cases coming online.

Ampleforth Holders

So, when will demand for AMPL increase beyond liquidity providing and speculation?

Very soon. This is why the AmpleSense DAO exists.

The DAO is focused on greatly accelerating the development of additional products, services and applications for Ample and other elastic assets over the short-term.

Our goal is to fund the development of solutions and help showcase the unique benefits of Ample and other elastic assets. Our work will ensure that holders have many ways to productively hold and use the asset — beyond speculation.

Stay tuned.

Join the elastic finance movement by becoming a member of the AmpleSense DAO Community Hub. We’re an independent organization focused on expanding use cases and utility for Ampleforth and select elastic finance assets.

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