“On day one, Ampleforth said: Let there be positive rebase and there was positive rebase. And it was good.”

1. Introduction

In this speculative thought piece, we will explore how Ampleforth token ($Ampl) can be used as collateral in borrowing/lending platforms. Additionally, we will explore a novel mechanism by which Ampleforth can be desirable (not just acceptable) as collateral during negative rebase for anybody who eagerly wants to profit.  But first we will describe Ampleforth and its life cycle so anybody can understand how new systems (beyond traditional DeFi) might need to be created for the Elastic Finance Economy because if Ampleforth rebase is a game changer, and  it certainly is, then also new game changer borrowing/lending mechanism & platforms with novel game-theoretic frameworks are needed that might be completely different to current DeFi  platforms, for this kind of money games currencies and the Elastic Finance Economy.

2. What is Ampleforth?

Ampleforth is a non-collateralized cryptocurrency with a rebase function that adjust its total supply in response to daily-averaged market price resulting from the market forces of supply and demand. The reality of the rebase function pioneered by Ampleforth’s team is really an innovation with many applications within and outside cryptocurrencies. A clear proof that innovation has occurred in the crypto-sphere can be measured by the number of forks that a code has experienced, which suffice to say, at least currently there are approximately 1-3 new projects with the rebase function coming to market every week. However, as a pioneer idea, is a little bit challenging to be understood by traditional market players and in many case can be considered a high-risk asset due to its volatility which can be augmented by the rebase feature.  Besides being ground-breaking, Ampleforth has still not been able to gather enough support from other communities/projects to be used as collateral within their borrowing/lending DEFI platforms. It’s the view of the author that part of this is due to Ampleforth’s high reflexivity that results in violent price fluctuations (I have experienced them personally) which might have caused the general public opinion to view it (at least psychologically) as unfit to be used as collateral in platforms that rely exclusively in dollar pricing to determine liquidation prices/ratios. To a lesser extend but not least important, $Ampl might break composability with the rest of current DeFi (I call it Inelastic DeFi).

3.How does $Ampl maintains its cyclic nature “of being above and below the target price”?

Ampleforth’s price always follows a pre-determined path. People buy it with the expectation of profits due to the positive rebase (supply expansion, meaning you get free ample tokens) and once its price is above $1.06 and daily positive rebase start becoming routine, there will be a point in which the market participants will start selling their $Ampl tokens (because they don’t want to be dumped on or because they consider it has reached a temporary peak or because they consider is overbought or because of other external factor like overall market correction ,etc) causing a chain effect that will drive the price down to ~$1 and later to below ~$0.96, point at which daily negative rebases (supply contraction, meaning $Ampl token start being deducted from your account)  start becoming routine. After some time of daily negative rebases, the market participants will again start buying $Ampl tokens with the expectation of price appreciation and possibly surpassing the price of $1.06 leading to season of daily positive rebases. It is the psychology behind compounded profiting (price appreciation + positive rebase) in the mind of market participants that fuels the cyclic nature of $Ampl’s price. Ampleforth is basically reflexivity expressed in terms of supply rebase, so rebase is the servant of reflexivity.

4. Ampleforth as Collateral in DeFi                                                                                                                                                                                

Classical Peer-to-Peer Lending & Borowing

Currently there are no dominant permission-less peer-to-peer lending/borrowing platform but mostly peer-to-smart contract lending/borrowing protocols as can be seen by the fact that in the main borrowing and lending platforms such as AAVE, Compound Finance & MakerDao dominate the DeFi landscape, each having their own process and governance by which they accept new collaterals into their protocol as well as their own specific algorithm by which they determine the lending and borrowing APYs. It is the opinion of the writer that $Ampl would be an ideal fit for any peer-to-peer borrowing/lending protocol because each user can manage its own risk to reward ratio properly by stablishing their own parameter with respect of liquidations, how much can be borrowed, APY in a peer-to-peer manner. Borrowers will be willing to provide a collateral in order to borrow $Ampl if they expect price appreciation and/or potential rebases, and lenders would be willing to lend $Ampl (for collateral like stable-coins or even less reflexive assets) under the peg in order to reduce their exposer to the negative rebase or above the peg for a handsome premium. This is classical lending/borrowing in a peer-to-peer fashion with little spread between the borrowing and lending’s APYs which is better than what current dominant borrowing/lending protocols offer in which usually the borrowing APY > lending APY. This peer to peer borrowing lending can be denominated in fiat (e.g. $) and/or $Ampl (if u borrow 10 $Ampl, then 10 $Ampl must be returned) with the liquidations parameterized by the lender and borrower, classical supply and demand like buying/selling in decentralized peer-to-peer crypto-platforms. 

Ampleforth in Lending/Borrowing DeFi Protocols with Pooled Liquidity

Currently lending/borrowing protocols with pooled liquidity are having traction in DeFi. These protocols mainly consist in pooling liquidity provided by lenders, to whom a dynamic APY is given.  Likewise, borrowers who want to use their assets as collateral, are requested a collateral to get a loan and are given a APY they must pay in order to recuperate their collateral, liquidation occurring if collateral’s valuation reaches a specified price unless more collateral is added.  So far, $Ampl hasn’t been listed in any of these platforms, this might be due to the fact that these listings are subject to a process, voting, governance, etc.  $Ampl should have no problem to be integrated and used in these platforms the same way many other assets have been because the lending APY is always > borrowing APY. I just would add that those using $Ampl as collateral will need to be extra careful due to the violent volatility $Ampl price is many times subject to, so this way mass-liquidations can be avoided.                                                                                                                                                                                                                                                                                                                                      Ampleforth as Collateral in the season of negative rebases.

Below I present some thoughts that could potentially make Ampleforth not just fit but desirable to hodl (by hardcore ampl users), to be bought (by speculators) and to be used as collateral by composable-ready DeFi lending/borrowing protocols, independent borrowers & lenders as well as by  stablecoin-minting platforms, even in seemingly adversarial conditions (like during a death spiral where violent price depreciation amplified by negative rebase can be difficult to overcome) while preserving the integrity of the network.

I personally have bought $Ampl when its price was below the target price at ~ $.80-$.94 range, (and even below $.80) not a few times but ONLY when I was certain its price will go up and it went but that is not just due to the fact I was expecting profits resulting from price appreciation or a potential positive rebase but also because I believed that it would happen (I was using stop-loss orders just in case it went below). The last time I did was a no brainer as $Ampl was oversold at $.78 in Kucoin (after the hack and when withdrawals were closed) while the price in any other exchange was like $1, hence I was receiving positive rebases (Kucoin price was excluded as input to the oracle price) but that was a unique circumstance that really occurs. I think is possible to incentivize all market participant to eagerly buy/use $Ampl (at prices way below the target price when there is daily negative rebases) with incentives (not based on a circumstantial event like the Kucoin hack) stronger than psychological such as the potential price appreciation and/or a possible positive rebase. 

How could a lending/platform accept $Ampl into a liquidity pool or as collateral during a death spiral where price depreciation and the negative rebase put the whole Ampleforth protocol at risk? Is this too much of a risk for pooled liquidity protocols and their users who are too aware of the price? Can a user just lend (dump) their $Ampl into a smart contract (just right before a negative rebase takes place) to mint a stablecoin to later forget about the collateralized $Ampl? Why would a protocol give me an APY for a coin that is experiencing negative rebase day after day and who would want to borrow that “hot” asset other than hardcover $Ampl believers? The answers to these questions can have an easy answer by my standards but many people have problem with them (and also have different tolerance levels to negative rebase) and hence would not touch $Ampl only until its price is around $.96-$106 (which is the stabilization zone where there is no rebase). But can something tangible be done to deal with these questions?

I believe there is some ways in which $Ampl can leverage the uniqueness of its rebase function in a more aggressive way will create organic but accelerated demand by market participants even in seasons of daily negative rebases, bringing its price faster to the target price zone without breaking the integrity of the system. A potential way could be:                                               

Vaults, Rebases, Fractional Rebases & Stableampl: Just a thought

I suggest the possibility to have a stablecoin minter/vault that can accept $Ampl (at any price below the target price) + a corresponding amount in stablecoins so that 1 ampleforth accepted + stablecoin amount = $1.01 stableampl ($1.01 was chosen because is the middle price of the stabilization/no rebase zone) can be minted. For example, if $Ampl is at $0.80, then by locking 100 $Ampl + $20 in stablecoins, I would be able to mint 100 stableampls. The $Ampl locked in the vault will have to be frozen in time and space (without experiencing the rebase function, and yes, this implies a change in the network from complete-network rebase to fractional-rebase to avoid that the $Ampls locked in the vaults undergo rebase) and be removed from the circulating supply until is redeemed back into reality (most likely when the price is above the target price) where it can again experience the goodness of the rebase function (btw, I don’t think the negative rebase is bad, it is just another side of the same coin that is needed to bring balance).  The stableampls can be a ERC-20 or A ERC-721 (an NFT) both of which can unlock the vaults/minters to redeem the assets inside, this ERC-20 or NFT stableampl can be traded in in different ways in the open market. The advantage of this whole new mechanism is that it will dry the $Ampl supply (people can sell no more) and hence cause more demand for $Ampl and therefore accelerate the process to reach the target price. The more $Ampl is put in the vaults/minters, the more it will cause scarcity and hence drive demand for $Ampl. At the same time, $Ampl hodlers can use this mechanism as a hedging measure against the negative rebase. How much will these stableampls should be worth? There is no reason why it should not be traded at $1.03, but as price of $Ampl goes up, is expected that people will be willing to pay premium to have the opportunity to unlock the vaults/minters specially during season of positive rebase which will come faster. In any case, we can let the market decide the price of stableampls should be. Stableampls will get burned once the assets in the vaults have been redeemed. Whether is by using ERC-20 or ERC-721, this mechanism is composable-ready with current DeFi platforms while proving a hedging mechanism ready for their platforms and/or users in case they feel the need to use one against negative rebase. There are more details and subtleties to this mechanism but the key aspects as well as the motivation for it have already been expressed in a clear manner.

5. Conclusion.

So all in all, it's clear that Ampleforth is one of the most innovative project that have shown up in the scene recently that will sooner or later allow new application that might go beyond of what DeFi is currently at (applications that can go beyond the cryptoverse) is at, and all due to its rebase function as well as the powerful reflexive drives that regulate the cyclic nature of $Ampl price. The few thoughtd in this piece were meant to explore uncharted territory within the Amplverse and to invite other users & community members into a conversation about the project and its possibilities.

Note: This post was written in order to be submitted in the second topic of the #ELI5AMPL competition, the one corresponding to the #AMPLANALYST section sponsored by Publish0x.

#ELI5AMPL #AMPL