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Aug 18, 2020

17 min

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17 min

What is Ampleforth: Complete Guide

One of the biggest problems facing cryptocurrencies today is their heavy correlation to Bitcoin. While the crypto market has come a long way in development over the last ten years, prices still follow Bitcoin’s price action. A dump in the price of Bitcoin almost always guarantees the same in the price of the altcoins market. This poses a risk to the long-term development of the market because it could ultimately starve high-potential projects of investments. That’s because the crypto market as a whole is still a volatile, high-risk environment. Therefore, if investors can get a return on their money by investing in bitcoin, there is no point in seeking investments in altcoins, which are even riskier with the possibility of bigger losses in case the market dumps. In this environment, the only way for the market to grow is by using a different valuation approach where a correlation is not the basis of price. Ampleforth is a crypto project that offers this solution. The Ampleforth protocol reacts to market fluctuations by algorithmically changing the supply of AMPL tokens based on the prevailing nominal exchange rate, rather than the price. This gives investors a chance to build a portfolio that is not entirely driven by the price of Bitcoin.


What is Ampleforth?

Ampleforth is a crypto project that uses an algorithm to keep its purchasing power stable through variable monetary supply. Unlike stable coins that peg their price at $1, the price of Ampleforth moves by changing supply to reflect prevailing demand. Essentially, when the price of the AMPL tokens drops below a certain price level, the protocol cuts the token supply and stabilizes the price. On the other hand, if the price rises above a certain price range, the protocol automatically increases the token supply and stabilizes the price. At the moment, it is pegged to $1, which means that supply is altered to keep the token’s value at around a dollar. However, the protocol is still taking in data from the consumer price index. This will act as a basis for determining the value of AMPL tokens in the future. Essentially, Ampleforth is smart synthetic money, but with the same attributes as natural scarce commodities like silver and gold that are also used as money. One key thing to note about Ampleforth is that all wallets fluctuate simultaneously, which means that the proportion of tokens held increases and decreases does not affect investors holding AMPL tokens. 


Brief History

In 2018, robotics researcher Evan Kuo and his colleague Brandon Iles set out to solve the problem of correlation between digital assets. The two formed a team and got the financial backing of $3 million from a host of big names such as Coinbase’s Brian Armstrong, True Ventures, and Pantera Capital. This initial round of funding was done on 13th March 2018 and saw the allocation of 9,250,000 AMPL tokens at $0.32. Then the project did another private ICO on 10th December 2018 and raised $1,750,000 in a funds drive that allocated 1,650,000 AMPL tokens at $1.06 each. The project finally went public on 13th June 2019, through a Bitfinex Initial Exchange Offering that allocated 5 million tokens at $0.98 per token. Besides having big names such as Brian Armstrong on its investor list, the project has some equally big names in its list of advisors. Its advisors are Niall Ferguson, a senior fellow at Hoover Institution, Manuel Rincon, also a researcher at the same institution, Noah Jessop, a venture capitalist at Founder Collective, Joey Krug of Pantera Capital, Sam Lessin, the founder of Fin and Paul Veradttakit, also of Pantera Capital. 


Ampleforth Technology & Advantages

Ampleforth uses an algorithm to determine the number of tokens that are in circulation at any one moment. This ensures that the price of the token is determined by forces of demand and supply, and is not at the mercy of Bitcoin’s price movements as is the case with the majority of the altcoins. Several inherent benefits come with the technology that the Ampleforth protocol uses. Some of them are as below:

  • It solves the problem of correlation between digital assets

Bitcoin was the first cryptocurrency ever developed and has an over 50% dominance of the crypto market at any one time. The result is that most of the cryptocurrencies that came later tend to follow Bitcoin’s price movements the majority of the time. Anytime Bitcoin experiences a selloff, the rest of the market follows suit. The sad part is that some of these projects are so technologically advanced that they should not pump and dump simply because of Bitcoin’s price movements. The correlation with bitcoin not only slows down such projects, but it also keeps most of the institutional money flowing into cryptocurrencies in bitcoin. Ampleforth solves this problem by creating a different approach to crypto valuation. Unlike other altcoins that take a price-based approach to trading, Ampleforth makes use of supply as the key metric. Every 24-hours, Ampleforth’s supply is adjusted to reflect the prevailing demand. To determine the supply, the protocol’s algorithm uses data from multiple credible oracles to establish the nominal exchange rates between different cryptocurrencies and adjusts the supply accordingly. For practicality, assuming X has 1 AMPL that is priced at $1. Then within the day demand for the token doubles to create a situation where X now still has 1 AMPL tokens valued at $2. To keep prices stable, Ampleforth reestablishes a new equilibrium by increasing the supply. This means that X will now have 2 AMPL tokens that are valued at a dollar each. The reverse also happens if the demand declines. Essentially this creates a situation where Ampleforth is not correlated to the rest of the crypto market and is valued at a price that reflects its demand at any given time. It does this while allowing investors to take advantage of the volatility of the crypto market. That’s because, by its nature, Ampleforth is not a stable coin. While a stable coin eliminates volatility, AMPL tokens can rise and fall in value, albeit without a direct correlation to the rest of the market. This is evident in its recent price action, where it hit a high of $4 and has since dropped to under a dollar. Ampleforth is essentially money that is governed by the laws of economics and not the ups and downs of Bitcoin. In the long run, this could see it gain adoption as synthetic commodity money, and stand in the same league as natural wealth commodity money, such as gold and silver.

  • It opens up the viability of cryptocurrencies as money

While cryptocurrencies are used as a form of transfer of value, they are yet to make any meaningful entry into this space. For the most part, they are used as speculative assets. While there are multiple reasons for the low adoption, the main reason is that most cryptocurrencies are deflationary. This makes them lose attractiveness as base money for underpinning an economy. Any country that uses them as a base currency would be at risk of contraction in economic activity. That’s because, by design, they disincentive work by encouraging hoarding. Ampleforth does not have this problem. By design, Ampleforth has an elastic supply which makes it useful as a base currency for economic activity. This places at the forefront of bringing cryptocurrencies to the fore as modes of payment. It also does this without the challenge of its price being under the cloud of Bitcoin’s price movements. Most importantly, it offers a massive opportunity for unbanked all across the world to build wealth using various DeFi tools while using AMPL as a means of everyday transactions and value storage. 

  • It is a tool for diversification in the crypto environment

Every asset class in the market allows investors to diversify within it except for crypto. For instance, when it comes to the stock markets, an investor can choose between stocks in different sectors and protect themselves from adverse price movements, while growing their portfolio. In the crypto market, this opportunity has not been there for a very long time. That’s because, even if one were to buy several cryptos, their price movements would still move in tandem with Bitcoin, defeating the whole point of diversification. The only recourse is to get into stable coins, which do not offer any value growth. Ampleforth changes this by offering a real break from the Bitcoin controlled market. Since its price movements are a function of supply and not Bitcoin’s price action, it can be used as a hedge for those seeking growth and safety. This creates an incentive for big money players to get into the crypto market and create a diversified portfolio. By acting as a hedge in the market, Ampleforth could help deepen liquidity in the crypto market and stabilize prices in the long run. 


How does Ampleforth work?

Ampleforth works by sourcing for pricing data from Chainlink oracles and its internal oracles. The data is mainly obtained from Kucoin and Bitfinex, and the algorithm checks if the price of AMPL is in the $0.96 and $1.06 equilibrium range. If the prevailing price is higher than $1.06, the protocol automatically increases the supply. Conversely, if the price drops below $0.96, the algorithm decreases the supply. This calculation is done daily, reducing the risk of instant correction. However, despite being pegged to $1, Ampleforth is not a stable coin. Unlike stable coins, Ampleforth is specifically pegged to 2019 dollars, which are inflating at a 2-3% rate annually, which means that this token has the potential to gain in value, in the long run. 

It is also important to note that the Ampleforth protocol is not decentralized, but it is autonomous. This means that the Ampleforth foundation can change the supply and even freeze the tokens in circulation. Another important component of the Ampleforth working mechanism is that it has a system for incentivizing user-generated liquidity. The system is called the Ampleforth Geyser and is actualized in collaboration with Uniswap. It works by rewarding AMPL users for depositing their tokens in the Uniswap protocol and helps in keeping the whole ecosystem stable.


Perspectives & Takeaways

Ampleforth offers an opportunity for altcoins to decouple from the chokehold that Bitcoin has on their prices. The tremendous rise of Ampleforth since the idea was conceived points to a market that is hungry for such an alternative protocol. Its public offer when it launched on Bitfinex was sold out in under 17 seconds. Since then, it has attracted lots of positive press both in the mainstream media and on social media. On August 6th, Crypto News Flash reported that data from sentiment was showing an increase in Ampleforth uptake. It stated that,

“Santiment highlighted in a separate report the newcomer Ampleforth (AMPL) and the fast price development of the token. The analysis firm claims that the token has gained popularity and investor confidence…Santiment describes investors’ perception of AMPL as “extremely positive” with the potential to continue that trend.”

On Twitter, one user recently wrote that,

“The problem with global financial markets is the lack of sound money. Gold and Bitcoin do not solve this. #Ampleforth solves this.”

This all points to crypto that is increasingly more visible in the market, as a solution to the problems that Bitcoin and other altcoins have failed to solve. 


Ampleforth website

To learn more about Ampleforth, one can check out their website on https://www.ampleforth.org/.


Ampleforth Github

To learn more about Ampleforth’s development, one can check out its Github on https://github.com/ampleforth.


Ampleforth Twitter

To learn more about the project, follow them on Twitter at https://twitter.com/ampleforthorg.


Ampleforth Reddit

To contribute to the Ampleforth community, join them on Reddit at https://twitter.com/ampleforthorg


How to store and manage AMPL

There are multiple ways to store AMPL tokens. One of the best is Atomic Wallet. This wallet is safe because it gives you control over your private keys. It also has over 300 coins and tokens that one can trade their AMPL tokens for. The wallet also allows for staking to grow crypto incomes passively.


Conclusion

Ampleforth is a crypto project that bases its price on supply. This allows its price to move independently of Bitcoin, unlike other altcoins. Since its launch, the project’s price movement has largely been independent of Bitcoin. Ampleforth currently has a market cap of $181 million. The project continues to evolve and recently announced that it was removing the pause function. This was motivated by the need to enhance transparency in governance and grow the project.

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