Recently, I have been looking at the trading on two cryptos (AMPL and PMGT) that are either supposed to function as a algorithmic stablecoin or as an asset backed token. These are interesting as I'm not sure that most users actually realise that there is a class of tokens that are SUPPOSED to have a target value, and that not all tokens are supposed to moon like crazy.
Today, I'm going to talk about Ampleforth (AMPL) and specifically the AMPL/USDT pairing on Kucoin. Now, Ampleforth is one of these tokens that are supposed to try and maintain a target peg of 1 USD (adjusted for inflation from 2019). When it launched, I picked up some of the tokens as it was an interesting project that had an interesting method of trying to maintain the dollar peg.
When the peg is overshot (as you can see it currently is quite a bit above the peg...), the protocol will increase the supply of the token. It does this in a way that PRESERVES the relative balances of wallets against the circulating supply. So, if you hold 1% of the tokens, then after the printing, you still hold 1% of the supply. That means that coins will start appearing in your wallet balance.
Needless to say, when the reverse is true (the dollar peg is undershot), it will contract the circulating supply of the tokens whilst still preserving the wallet ratios. So, you will see tokens disappearing from your wallet balance.
This attempt to re-balance the circulating supply is known as a "Rebase" and it takes place once ever 24 hours withe price feeds being provided by both centralised and decentralised oracles. The idea is that with more tokens in supply, people will be incentivised to sell them off at the higher price (and the reverse)... which should bring the token back to USD peg.
As you can see, over time... the peg has been oscillated around. Keep in mind that the system is still new, and that volatility is still expected.
So, the other day, when I was looking at my Kucoin app, I noticed that I had suddenly received quite a chunk of AMPL tokens over time... and that it's total USD was much higher than what I had expected as well. When I had a closer look, I saw that the peg was WAAAAAYYYYY off... with AMPL trading around the 2-3 dollar mark instead of closer to 1. Thus, the protocol was printing like crazy to try and dilute the value of the token.
So, my first instinct was to just sell it for Bitcoin... but then I took a bit more time to think about it before placing the order (always a good idea!). AMPL is trying reach the USD peg, and selling would only dilute my stake... which would haunt me when the supply would be contracting.... plus, Bitcoin is a volatile asset, so there would be no guarantee that I would be able to buy back in with a similar sized stake.
However, if I was thinking about USDT... then this could make for an interesting way to skim off some value whilst maintaining or increasing my share of the circulating supply. So, I have layered quite a number of sell orders whilst the AMPL/USDT price is above 2.... and then placed quite a few orders all the way back down from around 1.75 through to 0.8 USDT,
I am making the assuming that there will be an attempt to regain the dollar peg... after all that is the purpose of the project, to have some sort of algorithmically derived stability in this sea of volatility. If it doesn't achieve that aim, then the protocol is essentially useless... and will drop to zero or remain an oddly speculative currency. At the moment, I'm not really sure if it will succeed in regaining the peg... I think it will just take time, but it is pretty hard to tell... over the last week, it has stubbornly refused to fall... but I'm starting to wonder if that is a failure of the protocol, or the possibility that some buyers aren't realising what they are buying!
If it is the latter, they might be in for a bit of a burn as the protocol is really working against them at this time!... but perhaps, they only see the "free" tokens that are dropping into their wallets (the protocol trying to dilute the worth of the tokens). It's always a good idea to learn about what you are buying into!
Well... if you have AMPL... take advantage of this... if you don't, stay clear!