Today, the entire industry received some great news. Elon Musk is finally on the Bitcoin bandwagon after the announcement that his company, Tesla, purchased $1.5 billion worth of Bitcoin.
Yes, one point five BILLION;
This is some fantastic backing for Bitcoin and has sent the primary cryptocurrency soaring to a new all-time price today of almost $44,900.
With all eyes on Bitcoin, it seems like a great opportunity to remind you that this asset will not be your go-to digital currency for everyday payments.
Sure, in its original inception, Satoshi intended to create it as a means of payment. And sure, the lightning network is supposed to help bring a Layer-2 scaling solution to make everyday coffee payments a reality - but, after years of development, where the heck is that?
Instead, Bitcoin has turned into something that we like to call “a store of value.” It is somewhere investors put their money intending to let its value increase over time.
So, if Bitcoin is not going to be a digital currency for regular payments, then what will?
Well, the answer is Stablecoins.
However, the stablecoin industry has evolved over the past year, and it is no longer a simple ‘flat’ sector. There are various sectors inside the entire category, including; Asset-backed (collateral & USD reserves) or algorithmic (elastic & seignorage).
You might have heard of popular stablecoins such as USDC, Tether, and DAI. These are quite prominent within the industry and are still, by far, the most used stablecoins.
Even these stablecoins might not be the best solution for everyday payments either.
Although they are indeed stable, there are some fundamental flaws inside the mechanism behind these coins that might cause them to exhibit problems in the future and, therefore, aren’t viable long-term options for go-to everyday payments.
Let’s start with Tether, the number three top-ranked cryptocurrency. This is a stablecoin designed to maintain a peg at $1 because it *apparently* has an equal number of USD backing each coin on a 1:1 basis. This is a centralized service, totally going against the premise of a decentralzied world throughout crypto.
Yes, it does bring some short term stability to the crypto market, and it is instrumental for traders to flow in and out trades quickly. But, let’s remember, it is backed by the USD. The same USD that the US Government keeps printing at unprecedented rates. The same USD that experiences major inflation. The same USD that is built on a deck of cards and, therefore, so is Tether.
Quickly moving onto DAI. This is a stablecoin that is minted when users deposit collateral in the MakerDAO contracts. They overcollateralize their positions, meaning that they put in $150 worth of ETH to get out $100 DAI as a loan.
I want to be clear here. DAI is very cool. I do love it.
However, this also has some fundamental flaws in the sense that it is backed by collateral. IF the collateral deposited crashes, then the house of DAI that sustains the $1 peg comes crashing down with it.
There is one “stablecoin” that will eventually end up winning. I am sure many of you already know it; Ampleforth (AMPL).
How $AMPL Can Save Us From Money Printing
Firstly, I must confess, $AMPL is not really a stablecoin. Instead, it’s something that cannot be categorized with anything else that we have seen before.
So far, the easiest way to describe this beast is what is known as a multi-variable asset (MVA). This means that it has two variables to determine the value of the asset - the price and the supply.
The supply on this token is entirely elastic, and it moves according to the price with a design to target 1 $AMPL and the CPI-adjusted 2019 $1 - currently around $1.02.
When the price of $AMPL is above $1.06, the supply experiences what is known as a rebase, and everybody who owns $AMPL will see more coins in their wallets. On the other side, if the price of $AMPL is beneath $0.96, a negative rebase occurs, and people will see less $AMPL in their wallets.
Although $AMPL is moving up and down a lot these days, with this rebase mechanism, it is designed that the amplitude of the price movements will eventually decrease until it levels out at the target price;
Source: Andrew Kang Twitter
How can I pay with $AMPL if negative rebase can rekt you?
Look, it is so early in the life of $AMPL that it is pretty much just used for trading right now.
But, allow me to do a quick thought experiment of where it can end up.
Imagine a scenario where you have $AMPL in your wallet, and your local grocery store has all things priced natively in $AMPL. By that time, the Amplitude of the cycles on the chart above should be very low - meaning rebases are very unlikely then.
But, let’s say a negative rebase does kick in. The number of $AMPL in your wallet will be lower, but so will the products’ pricing at the grocery store you are heading to.
So, let’s say you have 100 $AMPL today, and a pint of milk costs you 2 $AMPL. You plan to go to buy it tomorrow but, overnight, a negative rebase kicks in. The overall supply of $AMPL gets reduced across the board.
In this scenario, you end up with 98 $AMPL in your wallet. However, the price of the milk also dropped and now costs 1.96 $AMPL.
This is how you won’t be getting rekt from negative rebases in the distant future, because products will be priced accordingly. At that time, negative rebases (and positive rebases) are unlikely to occur. But if they do, the price of goods and services will adjust accordingly.
This already happens today.
Remember the stories your grandparents used to tell you? “A Pint of milk only cost me $0.20 in my day”. Well, due to inflation, these costs have been increasing. The grocery store has to increase their costs in-line with inflation.
The same scenario will happen when people pay with cryptocurrency, and $AMPL is the apex option to choose.
Overall, it is evident that $AMPL will be a better form of digital cash than Bitcoin. In fact, it is quite an excellent solution when you get thinking about it.