As a result of the pandemic and the pure volume of money central banks have pumped into their economies, most halfway responsible investors are by now monitoring the CPI, the consumer price index. The CPI tracks the prices of various goods we buy frequently and is a primary way to measure inflation.
While most central banks set the inflation target around 2%, the US currently sees an uptick to 5%. Regardless, the FED continues assuring the markets with the phrase that this was just “transitory”. Only time will tell if they’ll be right.
Funny enough, central banks rely on one of the oldest concepts in economics: They follow the laws of supply and demand. When more money enters into circulation, supply increases, and if demand for it doesn’t, then the money loses its value; it inflates.
Similarly, when money is taken out of circulation, the remaining money appreciates as long as the demand stays stable. If you had some economics classes in school, you might know this idea as the invisible hand of the market. That ensures that supply and demand find their equilibrium at the equilibrium point.
Cryptocurrencies, which are a digital version of money, also rely on the notion of supply and demand. However, most cryptocurrencies have some mechanism to keep them deflationary, meaning that supply decreases or the new supply enter circulation. Bitcoin, for example, is limited to a total of 21 million, while other cryptocurrencies, such as BNB, regularly buy back and burn a fraction of the supply.
While this might be great for investors in these currencies, it makes them less suitable to support growing economies that need to adjust supply. Had we never abandoned the gold standard, our economies would be significantly smaller.
Ampleforth offers an algorithmic stablecoin that provides a cryptocurrency to support economic growth with their digital money.
Ampleforth, unlike other stablecoins, uses an algorithm to keep purchasing power stable. The price isn’t pegged by keeping US-Dollars in treasury (like Tether or USDC) nor by over collateralised loans locked in smart contracts (Maker DAO). Like central banks manage money, Ampleforth uses its algorithm to adjust the supply to stabilise the token price.
While currently soft-pegged to the dollar, the team also takes in data from the CPI.
The project was started in 2018 when the robotics researcher Evan Kuo and his coworker Brandon Iles wanted to solve the major problem plaguing the cryptocurrency markets: the correlation of assets. They formed a team, and with the financial backing of well-known blockchain VCs such as True Ventures and Pantera capital, they started creating the technology to support their idea.
The Ampleforth protocol relies on an algorithm that determines the number of tokens in circulation at any moment. It does so by comparing prices it sources from the Chainlink Oracle and internal oracles against the price range from $0.96 – $1.06. If the token trades above the price range, the protocol will increase supply to reduce the price of one token back to fit into the range. And the same process vice versa if prices are below $ 0.96.
How does this solve the correlation of assets in crypto?
Well, as we experience nearly during every big sell-off, the major market cap currencies tend to all fall simultaneously. Bitcoin Dominance occasionally reaches over 50 %, and this impacts the rest of the market. Even cryptocurrencies with advanced technology that objectively shouldn’t dump just because Bitcoin decreases still follow the trend. Not only does this slow down these projects, but it also keeps most institutional money locked in Bitcoin.
Since Ampleforth keeps its value by changing supply, it’s not correlated to the rest of the cryptomarket. The price reflects what’d be in traditional economics, the equilibrium between supply and demand.
It’s worth noting that the Ampleforth token AMP is not a stablecoin by nature; it can still rise and fall. Throughout its history, it had times at which it was trading at $4 before falling back into its range.
Another benefit of AMPL is its usability as money with elastic design, which opens up opportunities for the unbanked who could use DeFi tools and store value and transact with AMPL.
For traders, AMPL can serve as a hedge against the rest of the cryptocurrency market and diversify one's portfolio.
Initially, when the project started, it was autonomously governed by the Ampleforth foundation. Recently, Ampleforth has issued its own governance token: Forth in a move to be more decentralised.
Forth holders can vote on proposed changes to the protocol or delegate their vote to a representative.
Forth is an inflationary token with a 2% inflation rate. 67% of the Forth supply are distributed to the AMPL community, while the remaining 33% are airdropped to early backers, including the core development team.
Ampleforth is one of the first rebasing projects among algorithmic stablecoins and making strong moves to become more decentralized and consequently more resilient. With more and more investors aware of the negative effects of Bitcoin dominance on the market, it’s definitely a currency worth watching.
FORTH will start trading on Bitcoin.com Exchange on June 24th at 12:00 UTC with BTC and USDT pairs.