7 Thoughts Following “Stablecoins Are Killing It” #14 — Featuring Ampleforth Co-Founders & Advisor
Like everything else in crypto, Ampleforth is an experiment, and it’s backed by some of the smartest investors in crypto:
When I first looked in to Ampleforth, I didn’t get it. But I didn’t get Bitcoin at first either. The show, featuring Ampleforth Co-Founders Evan Ku and Brandon isles, as well as Advisor (and Hoover Institution Researcher on the history of finance) Manny Rincon-Cruz, was chock full of macro economic insight and discussion. It’s an hour well spent:
Or you can read our seven highlights below:
#1 Ampleforth is NOT A Stablecoin, It’s Base Money
Like Bitcoin, there is no collateral you can redeem your Ampleforth for.
But unlike Bitcoin, and virtually anything else that has come before, it’s supply changes based on demand.
So it’s more like “commodity money”, like gold, with nothing backing up the value but demand.
2. The Motivation For Ampleforth Was To Create An Uncollateralized, Uncorrelated Asset That Could Be A Building Block In The Crypto Ecosystem
Ampleforth’s supply policy was designed to lead to lower correlation with other crypto assets, which remain highly correlated today.
If Ampleforth is uncorrelated with other crypto assewts, it can add value to any crypto portfolio. In addition, Ampleforth can be a building block for the emerging DeFi applications that are currently reliant on correlated crypto assets.
#3 Fixed Supply Assets Run In To Problems When They’re Used As a Building Block In Banking Systems
The world has seen the problems associated with pegging money to gold, or any fixed supply commodity. So while Bitcoin was successful at recreating gold in a digital context, it still has the limitations of a fixed supply asset.
The way to address the fixed supply problem, and create a new form of “commodity money”, was to make Ampelforth supply elastic.
#4 Ampleforth Was Inspired By Two Research Papers
The first paper noted was George Selgin’s “Synthetic Commodity Money”, which examined digital currencies from the perspective of base monies and monetary economic theory. It laid out what needed to exist for a new financial standard to be created on top of the emerging digital assets.
The second paper referenced on the call was “Risk and Returns of Cryptocurrency” by Liu and Tsyvinski, which concluded that buying and holding Bitcoin would provide value to diversified portfolios.
#5 Other Rebasing Formulas We’re Considered
The goal of Ampleforth is not stability, even though there’s a target. The target tells us if there is more demand than supply, or less, and empowers the protocol to increase or decrease supply in response.
The current design looks at the target as a means, not an end. The system as its configured now smooths the rebasing impact. The goal is to build better base money, that is more robust.
MakerDAO uses ETH and other cryptocurrencies as the base money to collateralize DAI. But that can create problems given how highly correlated they are, as witnessed on Black Thursday.
#6 Ampleforth Shares A Box With Bitcoin In Selgin’s 2X2 Matrix
While Ampleforth is not a fixed supply like gold and Bitcoin, it isn’t a discretionary supply either, as it’s determined by an algorithm. And it has no other purpose than it’s monetary use.
#7 The Geyser Liquidity Mining Kickstarted Ampleforth’s Explosive Growth
Geyser was launched at the end of June to provide open participation for distribution to get Amples out in the world by providing a reward for providing on-chain liquidity. Geyser kickstarted two months of explosive growth. We look at Geyser like Bitcoin’s proof of work, which is why we refer to Geyser as “proof of liquidity”
Ampleforth remains an enigma in the crypto ecosystem, in that it’s unlike anything else, and it’s not well understood. It will be interesting to watch as people to start to understand Ampleforth’s unique properties, and how they can be leveraged.
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