BitBay (BAY) vs. Ampleforth (AMPL)
Are these two non-collateralized crypto supply management systems comparable?
This article is solely written for comparison purposes, and assumes a general understanding of each project. For a comprehensive description of each project, please check out these links before reading:
Whitepaper: Ampleforth - A New Synthetic Commodity
Synthetic commodities, such as Bitcoin, have thus far demonstrated low correlation with stocks, currencies, and…
***Full disclosure: I am working with the BitBay project as a content developer.
With that being said…
Are BitBay and Ampleforth considered “stablecoins”?
With last years explosion of stablecoins, there have been hundreds of new projects popping up, all hoping to provide the “holy grail” of eliminating cryptocurrency volatility once and for all. You may have noticed that a large majority of these projects are built from identical models. Their structure consists of an ERC20 token, backed 1:1 by a fiat currency (typically USD), with a subsequent fixed valuation of $1.00. This ancient model of currency pegs has proven itself vulnerable to a variety of black swan events throughout history.
Both BitBay (BAY) and Ampleforth (AMPL) do not rely on collateral or a fixed price target, therefore they should not be considered stablecoins.
However, each project comes from an entirely different background and are each aiming to fulfill different markets and use-cases. They both have non-collateralized models for reduced (not eliminated) volatility.
A brief background
Launched 2014, BitBay has been building (quietly) a feature-rich platform for global p2p commerce. Its native coin, BAY, provides utility from 3 primary elements: a P2P marketplace, double deposit escrow contracts, and a dynamic currency peg. Its marketplace and smart contracts have been up and running since 2015 (before Ethereum) while its dynamic peg currently being integrated into 3 new exchanges. The platform also includes a web-based marketplace (currently in beta), which provides users with easy access without having to download the entire blockchain.
As a “community takeover project” with little/no working capital, BitBay has established a massively functional platform for enforcing agreements without third-parties.
Their dynamic peg is 100% coded, tested, and set to launch soon.
Dynamic Peg Design
Built upon a 5-year old proprietary blockchain, BitBay’s dynamic peg represents a highly decentralized and non-collateralized method of monetary policy. Through 7 voting sessions per day, stakers are able to collectively change the liquidity of BAY.
In contrast to Ampleforth (and other common minting/burning systems), BitBay’s dynamic peg doesn’t add or destroy actual units or coins. It simply changes the speed in which they can be spent in order to put pressure on liquidity within exchange order books.
A brief background
Despite being a fairly new project, Ampleforth has quickly made itself known within the crypto space this year. The team released a whitepaper in early 2019, and raised 4.9 million USD within the first 5 seconds of its IEO. Being built on the Ethereum platform with a native ERC20 token, Ampleforth contracts have already been posted on github. The team is has finished their testnet phase and the protocol was recently deployed live on Bitfinex.
Elastic Supply Design
Ampleforth’s model uses an “elastic supply” in order to control wild price fluctuations commonly seen in other small-cap currencies. Through a sequential “rebasement”, the total supply of AMPL tokens is either increased or decreased (affecting every user’s wallet balance) until a perceived price target is met. With this change in balance, users have a temporary window to arbitrage the price difference, hopefully bringing it back to the target level.
When it comes to price targets, the difference is clear. BitBay’s system is not bound to any price target, while Ampleforth’s is.
Without a price target, BitBay voters can vote to move the supply liquidity in any direction, for as long as they wish. This characteristic allows the price to move to any level at a limited speed, in hopes of reducing extreme volatility.
In contrast, Ampleforth has an adjustable price target which directly tracks inflation. At distinct rebasement intervals, the oracle relays new price information to change the target price.
Rate of supply change / Rebasement
The rate of supply changes within BitBay’s dynamic peg is set at an interval of 7 voting sessions per day. Within each voting session, the supply can move 1–3% depending on the ratio of consensus. In total, the liquidity of BAY’s supply can move anywhere from 7–21% per day.
Within Ampleforth’s system, a rebasement can only occur once every 24 hours. A new price target is calculated at each rebasement interval, and the supply will change at a rate of the price difference divided by a specified number of days. By design, Ampleforth’s oracle is not stake-based. This is said to reduce attack vectors specifically associated with stake-based oracle systems.
A significant difference between BitBay and Ampleforth’s systems are the oracles.
Through voting, BitBay’s dynamic peg essentially uses a decentralized human oracle to direct supply changes. This completely eliminates a need for trusted nodes or other 3rd party sources to relay price info into the system. Since each vote is attached to a stake reward (through a PoS 3 system) and combined with pro-network health incentives, it creates a fair and tamper-resistant means of consensus.
In contrast, Ampleforth has established a partnership with both Quantstamp and Chainlink, (trusted third-party data providers) who will supply the Ampleforth oracle with price feed data. In addition, the Ampleforth team also has several other data feed solutions in the works.
For any decentralized and non-collateralized stability system to work effectively, proper incentives must be aligned to ensure that price moves in the desired direction.
Due to its non-collateralized structure, consensus-controlled liquidity, and strong utility value, BitBay can quickly enforce any price, in nearly every market condition. However, it has a slightly stronger ability to enforce neutral-to-positive pressure during negative market cycles. This downside strength is attributed to several well-placed incentives.
The first incentive is BitBay’s Double Deposit Escrow (DDE), which powers the P2P contracts in BitBay’s decentralized marketplace. As the usage of BitBay’s marketplace increases, so does the demand for Liquid BAY needed within these contracts.
As both buyers and sellers lock Liquid BAY into contracts for the duration of their deal, it reduces the amount of available Liquid BAY within the total supply. This reduction of liquidity results in positive pressure on Liquid BAY’s exchange rate during a market downturn.
Another incentive which helps collectively enforce BAY’s direction in price is its variable stake reward system, which encourages HODLing. Each reward is based on the various arrays of liquidity within each user’s wallet.
The stake reward incentive structure is as follows:
- Liquid = 5 BAY
- Reserve = 10 BAY
- Frozen Reserve = 20 BAY
- Frozen Liquid = 40 BAY
Those who voluntarily freeze liquidity will receive higher rewards for staked blocks, helping to preserve liquidity during negative price movement, saving it for future market reversals.
For Ampleforth, there is one incentive in the short term that serves to enforce a perceived price…
When the price of AMPLs recalculates and a rebasement begins, there is a limited window of time before where the supply has changed, and but the perceived price has yet to catch up. This gives nimble traders an opportunity to buy or sell any additional tokens at a discount or premium, ultimately bringing the price toward the desired target level.
Aside from arbitrage, Ampleforth aspires to bring more utility to its token through potential use as reserve collateral in stablecoins such as Maker’s DAI.
The elephant(s) in the room.
With both BitBay and Ampleforth being non-collateralized stability systems, there are two massive elements that are crucial to the success of either project…
Method of supply change & volume.
Method of supply change: Liquidity vs. Quantity
One of the key differences between BitBay’s dynamic peg and Ampleforth’s system is the method of how each supply changes.
For BitBay, the dynamic peg applies a change in liquidity to an existing supply of coins. Depending upon stakers’ consensus, the system will either “freeze or unfreeze” these coins, affecting the speed at which they can be spent. Just like water and slush, this process creates two types of tradable balances: Liquid (BAY) and Reserve (BAYR). Liquid coins can be spent immediately, while Reserve coins can only be sent with a 1-month timelock. This change in liquidity (velocity) mimics the effects of a change in scarcity, therefore putting pressure on the market price. Depending on the ratio of votes, the liquidity can change anywhere from 1–3% per voting session.
Current market price of 1 BAY: $1 USD
Price target: None
Current Wallet Balance: BAY: 1
Voting results: Deflate 3% (max)
In reaction to the voting results, the liquidity of BAY’s supply is reduced by 3%. This reduces everyones’ balance of Liquid (BAY), increases everyones’ balance of Reserve (BAYR).
After the rate change:
Current market price of 1 BAY: Now has pressure towards $1.03
Current wallet balance: BAY: .97
This next part is VERY important:
With BitBay, every user has DIRECT and SOLE OWNERSHIP of their own liquidity.
BitBay has no inherent “shared” liquidity pool. This means that, as the global liquidity rate changes, so does the actual percentage of a user’s ownership/equity within the total coin supply… including both liquid and reserve BAY. It is this critical element that forces a direction in the real spending power of a users balance.
Ampleforth is designed much differently. Its system changes the total quantity of tokens within the entire supply. Depending on an algorithm’s calculation of inflation/deflation, the supply of AMPLs will either increase or decrease. This increase or decrease is equally distributed to each user.
With every users wallet being effected by equally, there is no forced change in users’ true ownership of equity / purchasing power.
Current market price of 1 AMPL = $1.50 USD
Price Target: $1 USD
Current wallet balance: 1 AMPL
To compensate for the difference of target and market prices, the supply of AMPLs automatically increases by 50% (over a designated period), and is distributed to every user’s wallet. With the sudden increase of balance, users have the option to sell their additional tokens at the existing price of $1.50. Over time, this increased sell pressure is intended to bring the price back to its target.
After the full rebasement:
Current market price: $1 USD
Current target: $1 USD
Current wallet balance: 1.5 AMPL
Ampleforth’s model works on two very large assumptions.
- That exchanges will track user’s balances in terms of actual units (and not percentage of equity)
- That users will choose to buy/sell coins to arbitrage the price towards a new target
Assuming that both of these conditions exist, then the perceived price of AMPLs will change. However, the real equity/spending power will remain the same.
As money is a system of belief, only time will tell how long the belief in perceived value over real value will last.
If this issue of forcing change in spending power isn’t enough, there is one other giant elephant in the room…
Without volume to support the buying and selling, any non-collateralized system will have a difficult time enforcing a desired price. For BitBay, the raw utility of its BAY-fueled contracts is designed to provide this additional volume. When it comes to Ampleforth, its focus on marketing has brought it significant awareness. However any long-term strategy for driving volume has yet to be made public.
When it comes down to it, both BitBay and Ampleforth are completely unique in regards to 99% of other projects in the cryptosphere. If either are successful, they have a chance at filling an extremely important role of decentralized monetary policy.