AMPL is like Bitcoin except it can be used in contracts
AMPL is a cryptocurrency and financial building-block. Much like Bitcoin, it is algorithmic and uncollateralized. However unlike Bitcoin, AMPL can be used to denominate stable contracts.
How does the protocol work?
The Ampleforth protocol translates price-volatility into supply-volatility. This means the number of AMPL tokens in user wallets automatically increases or decreases based on price:
- When Price > $1, wallet balances Increase proportionally
- When Price < $1, wallet balances Decrease proportionally
These supply adjustments are called "Rebases" and rebases occur once each day. When the AMPL network grows you'll automatically have more tokens, when the AMPL network shrinks you'll automatically have fewer tokens, but the price per AMPL will tend to cycle around $1. This novel rebasing mechanism is what allows AMPL to be used in contracts.
What do we mean by Stable Contracts?
Let's go through a simple example. Imagine Evan and Micah enter into a bet:
"If the Lakers make it to the 2022 NBA conference finals, Micah will pay Evan 10 coins. Otherwise, Evan will pay Micah 10 coins."
We would not want to denominate this bet using Bitcoin, because Bitcoin's price volatility makes for an unstable contract obligation.
Unstable Contract Obligation
→ High risk of default
Stable Contract Obligation
→ Lower risk of default
AMPL vs Stablecoins Today
Often we're asked: "If the number of tokens in my wallet can change, then isn’t AMPL still speculative and volatile? Why not use a stablecoin like Tether or DAI for contract denomination?"
Our Answer: "Because the goal of the decentralized finance movement, is to create an alternative financial ecosystem, beyond the reach of politics."
Stablecoins today either rely on 1) traditional banks, or 2) lenders of last resort.
AMPL is an independent financial primitive that does not rely on centralized collateral or lenders of last resort. It's like Bitcoin, except it can be used in contracts.
Fiat collateralized stablecoins such as (USDT, USDC) rely on centralized banking partnerships.
Lenders of Last Resort
Debt-marketplace derived stablecoins such as (DAI) cannot be sustained by free market incentives and rely on periodic bailouts.