#Explain it Like I’m 5 years old
ELI5: Ampleforth
Image from Coinbase
Ampleforth is a rebasing cryptocurrency. Simply put, Ampleforth is a protocol based stable coin, trying to maintain the 2019 USD value. The reasoning behind why they would use the 2019 USD value is that fiat currencies are affected by manipulation and each year the USD value is variable, meanwhile 2019 is now a constant. Stable coins are utilized to hedge against price shocks in cryptocurrency markets.
What separates Ampleforth from other stable coins?
Pegged stable coins like USDC or Tether rely on central entities like traditional banks and verifiable audits, which at best can only be trusted to a certain degree. A major downside to pegged stable coins is as the name implies, they are pegged to current USD value. Unlike other cryptocurrencies, stable coins are subjected to USD price volatility.
Dai?
Similar to Dai, Ampleforth is a decentralized stable coin, not reliant on a central entity but rather a community and developers. Where Dai is a debt-marketplace stable coin, utilizing collateral, price shocks in collateral coin price devalue debt-marketplace stable coins. Ampleforth is different because it is protocol based.
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 stable coin 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."
How does the protocol work?
Image from Ampleforth
The Ampleforth protocol translates price volatility into supply-volatility, basically a expand and contract system.
Within the protocol there are three states for price volatility. The main state is equilibrium which is the 2019 USD value +/- 5%. During equilibrium nothing happens with supply as the protocol is in its ideal range. The other two states are expansion and contraction. Expansion happens when the price of ample is above the 2019 USD value +5%, and contraction is below 2019 USD value -5%. Expansion counteracts high ample price by increasing total ample supply, contraction reduces total supply. Both are reflected in users wallets as well. Contrary to how it may seem, expansion and contractions do not affect stake value, percentage of total Ample you originally owned before rebase. To prevent price shock Ampleforth uses a smooth curve to adjust prices. Hypothetically, if the price started at $1.10 and the next day market price is $0.95, with a smooth curve the protocol would enter equilibrium then contraction, dampening extreme price changes. Benefit of the protocol is savvy traders may want to prevent a contraction and begin increasing their stake. Possibly, preventing a contraction and only allowing the curve to reach equilibrium and hopefully return to expansion. Vice versa, bring that baby down, sell, sell,sell. When its cheap enough go ahead and buy loads of ample and go from a 1% hodler to a 5% hodler.
Why should one use Ampleforth?
Ampleforth is unique from other cryptocurrencies because it is protocol based which allows it to decouple from Bitcoin’s control on the market. Ampleforth protocol creates a vacuum of sorts for Ample, price is only affected by ample's market, and supply by price. When Ample is in expansion a fast trader may decide to purchase ample. Wait for the daily rebase at 9:00 UTC and then enjoy a larger margin of profit with the supply expansion. Which happens on the blockchain directly in their wallet. Contraction state, no problem. A slow trader would take advantage of sub-equilibrium price and hodl. Why? It's about increasing your total stake. If you own 1% of total ample supply during contraction. Then, you own 1% at equilibrium and
expansion, the power of rebase. Ampleforth is dictated by the traders and hodlers, not market price shocks. Therefore, Ample is for everyone, digital money free of politics.
P.S.
The Ampleforth Dashboard is a user friendly tool to understand the three states. Oracle rate reflects weighted average price of ample. Whether or not the oracle rate is within, above or below equilibrium dictates which state the protocol is in. Price target is the ideal value for Ample=2019 USD value (in current USD).
