1.2 Desired Output

As an output, the Ampleforth protocol seeks to reflect demand changes in quantity rather than price. Let's walk through a simple example:

Imagine Alice purchases 1 Ample for $1.

Demand suddenly increases, and she now has 1 Ample worth $2.

In the case above, the system will seek a price-supply equilibrium, such that Alice ends up with 2 Amples each worth $1. And the opposite is true when demand decreases. Continuing from the example above:

Imagine Alice has 2 Amples each worth $1.

Demand suddenly decreases, and she now has 2 Amples each worth $0.50.

Similarly in this case, the system will seek a price-supply equilibrium such that Alice ends up with 1 Ample worth $1.

Now you may be asking, why bother? Whether Alice holds 1 Ample worth $2, or 2 Amples each worth $1, makes no difference in terms of net balance since (1 x $2) = (2 x $1). But there are two key benefits to seeking price-supply equilibrium:

  1. It applies countercyclical pressures
  2. It encourages a stable unit price

We'll talk more about the importance of these benefits in course 2, which speaks to Ampleforth in a broader economic context.

For now, remember that although commodity-monies like gold and silver are naturally fair and politically-independent, they cannot function as suitable alternatives to central-bank-money because they are unable to respond efficiently to changes in demand.

Next: Protocol Rules