A 2-Minute Quick Guide to Ampleforth Protocol
The Ampleforth Protocol propagates price – information into supply, much like how thermal expansion propagates nearby kinetic energy into a material’s volume in the natural world.
The Ampleforth protocol achieves this by seeking a price-supply equilibrium, and will always enter a state of unrest until it finds one.
As a result, the system alternates between two modes:
- Dynamic: In which supply is changing
- Equilibrium: In which supply remains static
Ampleforth Protocol is a new protocol in which market changes due to the change in the supply of their token based on real-time nominal exchange rate information instead of the price.
The supply-based expansion and contraction mechanism decorrelates the AMPL token’s movement pattern from the performance of Bitcoin, creating optionality, and opening up applications in portfolio construction.
What is Ampleforth Protocol?
Ampleforth is a digital asset protocol for smart commodity money.
They are created to use the “base – money”, a form of collateral to be used as part of a centralized or decentralized banking system.
Ampleforth Protocol itself is designed to be synthetic commodity money.
They are called scare and synthetic because they are designed by humans but they aren’t raw materials like gold and silver which have immediate non-monetary use.
Synthetic commodities are incredibly valuable because –
- They are free from market distortions that arise from innovations in raw material extraction or non-monetary use;
- Their monetary qualities make them tradable the way that we trade fiat currency or traditional assets like stocks, both of which largely drive the US economy;
- They are free from politics and outside tampering like natural commodity-monies.
What problems does Ampleforth Protocol address?
- Digital asset intra-correlation
- Cryptocurrency as a means of payment
- Digital asset intra – correlation
Since the introduction of bitcoin in 2009, there are some other cryptocurrencies as well which represents financial value on an electronic data – driven ledger of some sort.
That’s where Ampleforth comes in.
Ampleforth Protocol is a paradigm shift from price – based trading strategies to supply based trading strategies.
Most cryptocurrencies operate singularly or mostly on the platform of determining and adjusting their value using their own price and the price of other cryptocurrencies on the market;
this is a pretty traditional economic concept, where price adjusts in response to shifts in supply and demand.
Ampleforth Protocol makes a critical change in their protocol, where instead of using the price to respond to changes in the market, they adjust supply instead.
Ampleforth polls a set of reliable oracles every 24 hours to get real-time information on nominal exchange rates between various cryptocurrencies and uses that to establish what they call a price-supply equilibrium.
Ampleforth allows for volatility, as the price of ampleforth persists and changes the total value of the account.
Ampleforth tokens can gain and lose value.
Additionally, given the expected volatility of Ampleforth, it’s highly unlikely that exchanges will use it for base trading-pairs, they’ll still use dollar-backed stable coins or regular fiat.
- Cryptocurrency as a means of payment
Ampleforth came into the picture again, this time as a base-money.
Fixed supply assets, like Bitcoin, are deflationary, and it has been shown historically that when a fixed supply asset is used as the underlying reserve-asset for a banking system, the supported economy becomes vulnerable to runaway deflation.
This is why we left natural-commodity reserve systems in favor of highly elastic (albeit discretionary) fiat systems.
And there is no reason to believe that a decentralized bank built on top of Bitcoin or otherwise fixed-supply standard will be different.
Use cases :
- Near – term, Diversification, Ampleforth is correlated with bitcoin and it offers different currency in cryptocurrencies portfolios. It doesn’t vary with the broader trend of the portfolio, but rather operates under an entirely different framework.
- Medium-term, reserve collateral, in banks like MakerDAO or reserves like Libra.
- Long-term, central-bank money. Ampleforth functions very similarly to Bitcoin as a replacement currency, but it’s more macroeconomically friendly for the reasons described above. This makes it strongly preferable and even more different from centralized forms of currency.
Conclusion
Ampleforth brings an incredible degree of disruption to the way that cryptocurrencies are conceived.
It changes the model from a price-based trading strategy to a supply-based strategy that guarantees more independence from the performance of other cryptocurrencies like Bitcoin.
It enables important applications in diversifying portfolios and creating a replacement for a centralized-bank currency that isn’t subject to the distress of deflation and truly benefits everyone fairly.
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