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Understanding Ampleforth: Traders and Investors edition

By Nams | cryptohowto | 4 Jan 2021


Disclaimer: The contents of this article should not be construed as financial advice. DYOR!

If you have done just a little bit of some research, you would know that AMPL is some sort of a stablecoin (its price in the market is meant to be not as volatile as typical cryptocurrencies, but fairly stable over time). however, if you have zero knowledge of AMPL, check out my introductory article about what makes AMPL different from other cryptocurrencies.

What is Ampleforth (AMPL)?

AMPL is a somewhat stablecoin that implements an Ethereum network interface. Its protocol has been designed to keep the price stable by automatically increasing or decreasing the supply of AMPL tokens in user wallets. This mechanism is referred to as rebasing, and it occurs every 24 hours at 02:00 AM UTC. Rebasing occurs in a way that token holders own a fixed fraction of the total AMPL circulating supply (i.e. if you owned 1% of the AMPL token circulating supply before rebasing, you will still own 1% of the circulating supply after rebasing).

The team behind the project

It is important for an investor to know the team behind a project, their reputation in the industry, and their track record. The Ampleforth team looks solid, with a team of engineers, investors, academics, and crypto enthusiasts who have a wealth of experience founding their own companies and working for institutions such as Google, Uber, Yale, UCLA, inter alia. The advisory board is composed of reputable individuals who have achieved so much in tech, academics, and business. Notable among the members of the advisory board is Niall Ferguson, author of The Ascent of Money in which he predicted the 2008 financial crisis.

The list of investors backing up this project includes True Ventures, Pantera Capital, Founder Collective, Slow Ventures, Brian Armstrong, FBG Capital, Huobi Capital, Spartan Group, Nima Capital and Skunk Capital.

How to trade AMPL

Please refer to this article for a basic understanding of the workings of the AMPL protocol.

The graph below shows AMPL’s price history over the last year.

AMPL price over 1 year

It can be seen that the price is fairly stable, oscillating around $1 with occasional spikes which could be attributed to a rapid increase in trading volumes. For example, around the middle of 2020 AMPL experienced an increase in daily trade volumes from an average of $1 million to a peak of $17,690,595 on 12th July 2020. Such rapid shocks tested the supply elasticity of the token. AMPL responded by increasing the supply to more than 700 million coins (as shown in the supply schedule below), thereby pulling the price down back to stability. Remember that the goal of the protocol is to adjust supply so that price of the token is kept in the range between $0.96 – $1.06, with the overall goal of maintaining it at exactly $1.

AMPL supply over 1 year

As a crypto trader or investor, you are probably asking yourself, “So how do I make my profit if the price is stable?”  Well, that depends if you are a short-term or long-term trader. Short-term traders can always take advantage of the daily changes in supply and price rebasing. As daily demand goes up, the price also rises, and vice versa. During this period, supply will rise or fall, apropos of the price, so as to achieve the price-supply equilibrium. This information is publicly available on the Ampleforth dashboard. It shows when the next rebase will occur (which happens 02:00 AM UTC daily), the price target, and the available supply.

AMPL dashboard

Traders can then make a decision to buy low and sell high. As long as there are enough buyers and sellers, the price will return to equilibrium as shown below. The goal of the protocol is to provide an incentive that stimulates buying and selling, in order to maintain the market price at equilibrium.

AMPL daily price equilibrium

HODLers and long-term investors need not be concerned about price changes in the short-term because the net effect before and after rebase is the same, as stated at the beginning of the article. A simple illustration is given in the Ampleforth whitepaper as shown below:

Alice still owns the same percentage of circulating supply

Ideally, there is no difference if Alice has 1 Ample worth $2 or 2 Amples each worth a dollar. She still owns the same proportion of the total volume (circulating supply).

It is important to note that the net supply could end higher or lower depending on market demand. Therefore, as a long-term trader you cannot ignore the circulating supply. Price alone is not enough to help you determine when to buy or sell. Market capitalization, or the combination of Price and Supply will determine long-term profitability of an investor.

Remember that as rebasing occurs, supply changes, and short-term actors will buy or sell at a higher or lower price while the protocol searches for the next supply equilibrium. This adjustment process will result in market cap graphs that will take either of the shapes below:

AMPL Marketcap equilibrium during expansion and contraction

In Graph A, market capitalization equilibrium begins at M1 and settles at M2. Short-term actors will trade at O until equilibrium M2 is achieved. In Graph B, market capitalization equilibrium begins at M2 and settles at M1. Similarly, short-term actors will trade at O until adjustment to equilibrium M1. Graph A occurs if supply is expanding due to increased demand, while Graph B occurs during contraction when demand is low. Looking at the marketcap chart below, you can notice how the shape of the graph takes a waveform that is characterized by equilibriums that are preceded by a point much higher or lower.

AMPL waveform market cap

Tracing the percentage change in market capitalization over the last year, it can be seen that AMPL has shown steady growth over the last year. The growth path has been tremendously impressive. By extrapolation, we can only anticipate sustained gains over the next short to medium term. The long-term prospects will depend on how well the team presents this project as a use case, quality of partnerships and how the community warms up to this project. So far, so good: the odds seem to be in AMPL’s favor.

market cap change in 1 year

(Source: coingecko.com)

Where to trade AMPL tokens

As at time of writing this article, you can trade AMPL tokens the following exchanges: Uniswap, Balancer, Kucoin, Sushiswap, MXC, Gate.io, Bitfinex, FTX, Virgox,Hotbit, Mooniswap,BitAsset, Kyber Network, 1inch, Bvnex , Bamboo Relay, to mention but a few. Unfortunately, deposits were on hold on KuCoin exchange (at the time of publishing this article).

Where to keep your AMPL

According to Ampleforth Foundation, supply adjustment will occur automatically if you keep your tokens in an ERC20 wallet. However, the case is different when you keep them in a centralized exchange (it is the exchange’s responsibility to update wallet balances apropos. Bitfinex, FTX, Gate, Timex and MXC are the centralized exchange-integrations that have been reviewed by the foundation.

The future of AMPL

The invention of money was one of the best things to happen to man’s civilization. Then, came Bitcoin, which is better “money” for obvious reasons. Then came Ampleforth. AMPL is better than Bitcoin (Yeah, I said it!).

Most cryptocurrencies are highly volatile which increases the risk of default in contracts. Because AMPL is a stable coin that is not backed by fiat money (unlike USDT, USDC, and others which are just as vulnerable to economic shocks as the US dollar), it is immune to inflation or other dilutive factors. Therefore, AMPL combines the best of fiat and crypto to bring you a product fit for use in contracts.

Currently having a Marketcap of $336,171,156, and ranked 64 on Coingecko, the things that could improve these numbers would be increased trading volumes when the world of DeFi and CeFi tightly embraces AMPL, a coin that maintains purchasing power. Also, getting AMPL listed on bigger exchanges will push the marketcap upwards.

Lastly, AMPL as an asset is a very attractive hedge against inflation and high volatility. As more players begin to exchange their bitcoins for more stablecoins, AMPL will definitely be the token of choice.

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Nams
Nams

Blogger. Cryptocurrency enthusiast. Economist. Researcher. Cryptocurrency is the future, and the future is now.


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