Ampleforth (AMPL) Review: The Adaptive Stable Crypto
For the last few months, all eyes in the cryptocurrency space have been laser focused on projects involved with decentralized finance (DeFi).
Protocols like Compound, Aave, and MakerDAO have introduced a new dimension of financial possibilities with supply-demand based interest rates, flash loans, and crypto-collateralized stablecoins, respectively. Among these game changers is a project called Ampleforth which has recently taken the spotlight, and for good reason.
Ampleforth is a DeFi protocol which seeks to completely rethink the way money is designed both inside and outside of cryptocurrency. It simultaneously addresses the problems of classical finance and decentralized finance by creating a stable yet flexible currency which can accommodate both inflation and deflation.
Ampleforth has been notoriously difficult to grasp, and some have claimed that it requires 2-4 weeks of study to fully understand. The Coin Bureau is here to explain it to you in plain English from top to bottom in about 15 minutes.
The History of Ampleforth
Ampleforth is the brainchild of Evan Kuo, a graduate of UC Berkley (mechanical engineering and computer science) and the former CEO of Pythagoras Pizza. His pizzeria made the news when it announced that it would be tokenizing its franchise in an attempt to “provide the same economic mobility” as tech startup employees for workers in the service industry.
In short, it would allow in-house employees, third-party delivery drivers, customers, and even affiliate marketers to earn tokens representing a share in Pythagoras Pizza and its profits for completing simple tasks.
This project drew the attention of investors at Pantera Capital who approached Kuo and introduced him to Brandon Iles, a former employee of Google and Uber who specialized in SEO and machine learning.
Kuo mentioned in an interview that his primary personal motivation for creating Ampleforth was the death of his father. This made him determined to create something which would last long after his own passing, and his passion for finance and technology made it clear that this would involve cryptocurrency.
The idea of Ampleforth itself came from examining the two things cryptocurrency seeks to redesign: money and banking. Kuo reasoned that of these two, redesigning money would be easier than trying to reinvent the banking system.
In the months that followed, the Ampleforth foundation was created with funding from the likes of Huobi, Coinbase CEO Brian Armstrong (who went to college with Iles), and of course Pantera Capital. The Ampleforth foundation consists of “engineers, academics, investors, and enthusiasts” from institutions such as Harvard, MIT, Stanford, and Yale.
Kuo and Iles created the Ampleforth cryptocurrency with the help of the famous Hoover Institute think-tank which assisted in writing the Ampleforth whitepaper. The Ampleforth cryptocurrency is modeled after a theoretical currency called the Ducat proposed by famous economist and philosopher Fredrich Hayek. This currency would see its total supply expand and contract to maintain its purchasing power against commodities such as food, oil, housing, and precious metals.
What is Ampleforth?
Ampleforth is a cryptocurrency which adjusts its supply based on demand. Ampleforth is built on the Ethereum blockchain as an ERC-20 token and each AMPL token is referred to as an Ample. When demand goes up, the total supply of AMPL increases and when demand goes down its total supply decreases.
This is done to maintain purchasing power regardless of economic pressure (the same “dollar value”). These supply adjustments are made directly to all AMPL wallet balances which maintain the same percentage of the total AMPL supply regardless of the raw numerical change.
Ampleforth is often misunderstood to be a stablecoin. While the aim of Ampleforth is fundamentally to provide the same function as a stablecoin, it is not backed by US dollars like USDC nor any locked Ethereum assets like MakerDAO’s DAI stablecoin.
This can seem like a real brain teaser until you understand the large scale (macroeconomic) issues found in commodity money (gold, silver, etc.) and fiat money (USD, EUR, etc.) which the Ampleforth protocol fundamentally seeks to address.
The Economics of Ampleforth
At one extreme, commodity monies such as gold make excellent stores of value, but they do not have a flexible supply and run the risk of runaway deflation. For those unfamiliar, US dollars were once backed by gold and literally represented a denomination of gold which you could go redeem at any bank for physical gold (hence the previous name: banknote). The United States went off the “gold standard” in 1971 and this is often blamed for the reason why the purchasing power of the US dollar has fallen since that time.
What is seldom talked about (and what Kuo has highlighted many times) is that the United States had to go off the gold standard because of the threat of deflation. After the second world war, US dollars were in high demand internationally. Since the supply of gold on Earth (and especially in the United States) is fixed and is only introduced to the market slowly via mining, the American government could not simply print more money to meet the demand since it would not have the gold necessary to back it.
A failure to print more enough money to meet demand would mean international trade would stagnate and the world economy would deflate. Also, if and when the other countries found out that the United States did not have enough gold in their vaults to back the currency, faith in the currency itself would decline both inside and outside of the United States. As such, fiat currency was created as a means of satisfying international demand for US dollars without the risk of deflation.
This brings us to the other extreme. Fiat currencies such as the US dollar have their values tied to the demand of that currency. Printing fiat currencies make it possible to adjust supply to meet international demand but there are two problems: the supply of money can only realistically grow (be printed), not shrink (be destroyed), and there are corruptible humans with their fingers on the money printer. In other words, fiat currency would work were it not for its inability to reduce supply and increase it responsibly.
Ampleforth presents itself as the solution to this dilemma as it can maintain its value while adjusting its supply to meet demand. This is best explained with the example given in the Ampleforth whitepaper which goes like this: Alice has 1 AMPL in her wallet worth 1$USD. The demand for AMPL suddenly rises, and the market price for AMPL jumps to 2$USD.
The Ampleforth protocol adjusts supply, and now Alice has 2 AMPL worth 1$USD each. What is remarkable about Ampleforth is that it is non-dilutive, meaning that Alice will still have in her wallet the same percentage of Ampleforth’s total supply when it changes.
What is Ampleforth used for?
Although it is designed to be the ultimate form of money and eventually seeks to compete to be the world’s currency, Ampleforth is not exactly accepted as legal tender at your local grocery store (yet). For the time being, Ampleforth’s primary use cases are within cryptocurrency.
The first is as a cryptocurrency which is truly uncorrelated to Bitcoin and the second is as a stable store of value within DeFi applications. Ampleforth is not backed by anything, making it a more feasible long-term alternative to crypto-backed stablecoins like DAI and possibly even fiat-backed stablecoins like Tether.
Ampleforth’s last use-case is arbitrage. Put simply, cryptocurrency traders who are quick to react have the chance to make some serious profits during the short windows of time before the supply is reduced when the price increases, and have the chance to increase the allocation of AMPL tokens (as a percentage of the total supply) before the supply is increased when the price falls.
The profit potential of AMPL trading is quite immense when you realize that seasoned traders can make steady returns independent of the rest of the crypto market since the price of AMPL is not dependent on Bitcoin.
The Ampleforth ICO
Ampleforth raised nearly 10 million USD across 2 initial coin offerings (ICO) and 1 initial exchange offering (IEO). The 2 ICOs took place at the beginning and end of 2018 and raised 3 million and 1.75 million USD, respectively. The IEO took place on the Bitfinex exchange in June of 2019 and saw all AMPL tokens sell out in 11 seconds for a hefty 4.9 million USD. KYC was required to participate in the IEO.
The total amount of AMPL tokens sold across all 3 offerings was just under 16 million, with the first ICO selling 9.25 million AMPL tokens at a price of 0.32$USD, the second selling 1.65 million AMPL tokens at a price of 1.06$USD, and the IEO selling 5 million AMPL tokens at a price of .98$USD.
Oddly enough, the total supply of AMPL when it was created was 50 million. These tokens were allocated as follows: Ecosystem (23.2%), Seed Investors (18.5%), Series A Investors (3.3%), IEO (10%), Team and Advisors (25%), and the Ampleforth Treasury (20%).
The Ecosystem is a fund designed to develop partnerships and foster community growth. Seed Investors include the likes of Pantera Capital and Brian Armstrong. Series A investors includes the likes of Huobi Capital.
Team and Advisors includes existing and future Ampleforth employees and advisors. The Ampleforth Treasury “will be used to sustain the foundation in a responsible manner, with the ultimate goal of distributing to as many users within the ecosystem in a sensible manner.”
How does Ampleforth work?
Oddly enough, Ampleforth is one of the few DeFi projects that is much easier to understand at the technical level than at the conceptual level. In a nutshell, the supply of Ampleforth is modified on a daily basis (at 1pm EST to be exact) to match demand using a smart contract (rebase).
This smart contract uses the Chainlink price oracle along with its own Ampleforth oracle (which Chainlink helped build) to source price data from KuCoin and Bitfinex to check if the market price per AMPL is within the 0.96-1.06$USD range. This is known as the equilibrium range and is within 5% of 1$USD.
It is worth noting that the Ampleforth protocol refers its adjustments to the price of a 2019 US dollar. This means that unlike other stablecoins which are pegged to the US dollar, the price of each AMPL token will increase in USD value in the future since the US dollar has a year inflation rate of roughly 2-3%.
If the Ampleforth protocol were to refer its token price to “current” US dollars, it would experience the same 2-3% yearly loss in purchasing power as the US dollar. In short, it would defeat its purpose.
If the price of AMPL is greater than 1.06$USD, the supply will increase and if it is lower than 0.96$USD then the supply will decrease. These two states are referred to as expansion and contraction, respectively. Expansion or contraction continues until the market price per AMPL token settles within the equilibrium range.
This supply change is made gradually and initiated as if it were to take place over a 10-day period to “avoid unnecessary correction”. As mentioned at the beginning of this section, the estimated change to supply is recalculated every day.
One last important thing to note is that the Ampleforth protocol, although autonomous, is not decentralized. The Ampleforth foundation still has the keys to the kingdom – they are able to both pause changes to token supply and even freeze all AMPL tokens in circulation.
If you have made it this far through the article and still feel like you are having a hard time understanding Ampleforth, try watching our YouTube video about it and consider looking at Ampleforth’s Red Book online “course”. It only takes about 30 minutes to finish and gives you a top to bottom explanation of the protocol.
The Ampleforth Geyser
The Ampleforth Geyser is a collaboration with Uniswap to incentivize users to provide liquidity on the platform. This is done by rewarding users in AMPL tokens for depositing their AMPL tokens into the Uniswap protocol. The more AMPL tokens you deposit and the longer you keep them in Uniswap, the greater return of AMPL tokens you will receive.
To use the Ampleforth Geyser, you must deposit an equivalent USD amount of Ethereum as the AMPL tokens you are depositing. You will receive a slow drip of UNI-V2 LP tokens (Uniswap V2 tokens), which will then need to be staked in the Ampleforth Geyser to receive your AMPL token rewards.
You can read this article for more information about how to use the Ampleforth Geyser and refer to this video for clarification about the statistics you see in the Geyser.
AMPL Price Analysis
Ampleforth has a price history unlike any other cryptocurrency. Since its introduction to crypto markets in June of 2019, the price of AMPL resembles that of a stablecoin and has hovered between 0.50$USD and 1.50$USD.
The recent spike in demand for AMPL has seen its price rise to over 4$USD per token and has been well over 1.50$USD for over a month. This may seem incredibly bizarre given that AMPL is designed to stay between 0.96$USD and 1.06$USD.
The reason why the price of AMPL has remained so high is because the demand for the token has been outpacing the rate at which the protocol is able to adjust its supply.
This is because the protocol modifies the total supply of AMPL as if it were doing so over a 10 day period which constantly “resets” every day (assuming that demand is continuing to increase or decrease at a rapid pace). Therefore, it is important to include the market cap curve of AMPL when examining its price.
As you can see, the market cap of AMPL has increased substantially over the last month. This is due to the increase in supply to meet the demand.
This has helped the protocol slowly but surely correct its market price and bring it back within the equilibrium range. The end result is a higher overall supply and market cap with the same price per AMPL token as before the surge in demand and supply.
Recall that although the balance of AMPL tokens in all wallets adjusts in accordance with the supply, holders of the token maintain the same percentage of the total supply.
This means that clever traders were able to make serious gains if they sold at the 4$USD price point, since not only had the token become more valuable, but the supply had increased as well meaning the actual number of AMPL tokens in their wallets had also increased.
How to Buy AMPL
If you are looking to get your hands on some AMPL tokens, the only way to do it is to buy them on a cryptocurrency exchange. Unfortunately, there is quite limited exchange support for the AMPL cryptocurrency.
Your options are essentially limited to KuCoin and Bitfinex. As you can see, almost 100% of the volume appears to be taking place on those exchanges. However, there appears to be a significant amount of volume taking place on the Uniswap decentralized exchange, almost 3x more than on KuCoin.
While in every other case we would raise a thick eyebrow at the centralized concentration of trading volume on a single exchange (or two), Ampleforth’s design makes it significantly less prone to price manipulation.
This is simply because any attempt at doing so will just result in the protocol adjusting its supply to meet the demand. Perhaps a large enough trader could make a nice little profit from the arbitrage, but both the price and supply would eventually stabilize on its own, leaving the market as a whole unscathed.
It is also briefly worth nothing that not many AMPL tokens are in circulation compared to its total supply, nor is the 24-hour volume significant compared to its market cap. The first is explained by the allocation of the initial 50 million tokens, of which the recipients continue to hold a large percentage of AMPL’s fluctuating supply.
The second is explained by the fact that many people are taking advantage of the Geyser rewards and staking their AMPL on Uniswap – stakeable cryptos often have low 24-hour volumes.
Ampleforth Cryptocurreny Wallets
Since Ampleforth is an ERC-20 token, it can be stored on any wallet which supports Ethereum-based assets. For hardware wallets this includes Ledger, Trezor, and Keepkey. There is also no shortage of software wallets which support AMPL.
Some of the most reputable include MyEtherWallet (web), Exodus Wallet (desktop/mobile), Coinomi (mobile), Atomic Wallet (desktop/mobile), Trust Wallet (mobile), and the Coinbase Wallet (mobile). Remember not to freak out when you see your AMPL balances change!
The Ampleforth Roadmap
Ampleforth does not have a clearly defined roadmap. Although Ampleforth’s profile on ICOdrops contains an image of a roadmap, this image does not seem to be anywhere on Ampleforth’s website, Ampleforth’s Medium, nor on Ampltalk, its economics web forum.
The last milestones of the Ampleforth roadmap on ICOdrops suggest a transition to community governance of the protocol. However, this has not been discussed or event hinted at by Evan Kuo nor Brandon Iles, both of whom still lead the project.
That being said, there are a few important things to highlight. The first is that the Ampleforth Geyser, which launched on June 24th of this year, is only set to last for 90 days. Kuo has noted that this period may be extended if there continues to be demand, and the Ampleforth team has yet to decide whether the initiative will continue and for how long. Both Kuo and Iles have stressed that for the time being, Ampleforth is effectively an economics experiment – they just want to see what will happen.
The second thing to note about Ampleforth is that although it is built on the Ethereum blockchain, it was designed such that it can be integrated into other blockchains such as EOS.
In an AMA from September 2019, Kuo and Iles noted that it is in Ampleforth’s long term roadmap to see the protocol exist on other blockchains besides Ethereum. The last and perhaps most important thing to note involves Ampleforth’s locking of distributed tokens. The details for this can be seen in the graph below.
As you can see, the AMPL tokens allocated to the Ecosystem, Seed Investors, Series A investors, the Team and Advisors, and the Ampleforth Treasury are partially or fully locked for a designated period of time. This was done to maintain the integrity of the network. Each allocation category will see their funds unlocked at a different rate, with all funds being unlocked by March 2024.
Our Take on Ampleforth
Without question, Ampleforth has succeeded in reinventing money. It would legitimately be the most promising project in the cryptocurrency space were it not for two things: the fact that it can in theory be copied, and the jaw-dropping number of AMPL tokens allocated to the Ampleforth Foundation and its investors.
Ampleforth’s long term goal is to compete against national currencies and establish itself as the world’s denationalized currency. The last section in Ampleforth’s Red Book course notes that denationalizing currency would force existing currencies to compete against each other and increase the quality of currency, since citizens would be able to freely choose dozens of previously inaccessible currencies.
The only problem is that Ampleforth is not immune from this competition and could just as easily see another currency similar to Ampleforth arise and dethrone it from inside or our outside of the crypto space. This conveniently brings us to the biggest problem with Ampleforth’s protocol: the allocation of AMPL tokens.
While it is not entirely clear whether any of the AMPL tokens in the first two ICO rounds ended up in the hands of regular individuals (and even part of the IEO was apparently reserved for institutional investors), even if we assume all ~16 million tokens ended up in the hands of run of the mill retail investors, that is still just a third of the total initial supply of 50 million.
This is a problem because the total percentage share of Ampleforth’s supply remains the same regardless of what that supply actually is. This means that even if the supply of AMPL is 400 million (which is roughly what it is at the time of writing), 66% of that total supply is still under the custody of the various entities related directly or indirectly to the Ampleforth foundation.
Now combine this with the fact that Ampleforth developers are able to pause adjustments to supply and even freeze all tokens in circulation and you have a recipe for disaster. Although the Ampleforth team is not able to manipulate the supply like a central bank with fiat currency, they nonetheless have access to the options on their own money printing machine.
A currency that can be manipulated and has two thirds of its supply owned by its creators is not a viable candidate as a global currency.
The fact of the matter is that you can always find something to criticize in almost every cryptocurrency project, especially those involved in DeFi (we did not even discuss how changes in demand for AMPL could disrupt its use as a stable collateral asset within DeFi applications).
At the end of the day, projects like Ampleforth are the beta versions of the next generation of protocols and the possibilities they bring. To that end, Ampleforth has introduced a concept so unique and promising that it may just change the financial world forever.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.