Ampleforth (AMPL) is the Key to DeFi's Future Development

Ampleforth (AMPL) is the Key to DeFi's Future Development


11 November 2021: Presently, decentralized finance (DeFi) is on its way to further adoption as development continues. An important factor in ensuring wider adoption is the existence of a reliable, durable unit of account that can be the base layer for DeFi. This article will present how Ampleforth (AMPL) is the base that DeFi needs through the protocol's recent developments.

 

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DeFi Powered by Ampleforth (AMPL)

For the average person, volatility that exists within the cryptocurrency space can be a concern. This becomes especially prominent when considering that for the majority of people to utilize DeFi effectively, it requires trustable stability. Stability is needed for the execution of basic transactions, lending & borrowing, valuations, and, above all, simply having a unit of account that is standard for the space.

For fiat currencies, this stable, standard unit of account has been the United States dollar (USD) for decades now. Of course, the evolving sentiment towards typical fiat currencies is increasingly negative. This is from a combination of factors including centralization, inflation, and more. With that in mind, many countries on Earth see the United States dollar as arguably the most favorable currency in the world (possibly unitl the last few years).

As sentiment towards fiat currencies has shifted, DeFi has been created to establish an alternative to the longstanding centralized financial system. DeFi too needs a standard unit of account to operate on top of -  one that the majority of adopters can trust. So, what options exist for this?

Current Options for DeFi can be summarized into the following four categories:

  • Price Volatile Coins
  • Collaterized Coins
  • Fractionally Collateralized Coins
  • Algorithmic, Decentralized Coins

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Price Volatile Coins

This category contains all the most well known projects in the cryptocurrency / web3 economy. Bitcoin, Ethereum, Solana, and others would all fall into this category. Presently, Bitcoin is being pushed as the leader for crypto adoption in terms of utilizing a coin for day to day transactions, lending, and other financial applications - this has been seen most obviously in El Salvador.

Bitcoin, however, is far from a perfect option. This is because  of the price volatility and added difficulty in identifying a recognizable unit of account.

If you were asked what 0.004 Bitcoin is, would you know off the top of your head? This is no different with the proposed Satoshis. Day to day, the value Bitcoin holdings will fluctuate rapidly. Also worth mentioning for Bitcoin specifically -  it cannot even be utilized in DeFi protocols (as of 2021).

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Collateralized / Fractionally Collateralized Coins

Collateralized or fractionally collateralized coins include traditional stablecoins like Tether, US Dollar Coin (USDC), DAI, and others. On the surface, these look like safe, stable options to use within DeFi and crypto. However, these coins all rely heavily on centralized collateralization or collateral from each other.

This means that options like USDC are backed and can trace to the coveted $1 standard mark because the same value of the coin's market cap can be found physically in fiat value in a bank or other entity. However, allegations have arisen to challenge the legitamcy of these claims. In Tether's circumstance, they have not proven that their protocol is backed entirely. This means that - potentially - the billions of new Tethers being minted may not be backed with anything. These claims about Tether have sprung a world of controversy as talk of regulating stablecoins grows each day.

Regardless of whether these claims are true or not, having a centralized unit of account as the base of DeFi immediately erodes the purpose of being decentralized but do offer a stable asset if the longevity of such coins is to be trusted.

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Ampleforth's Approach

In terms of creating a unit of account, Ampleforth has done something that no other protocol has been able to replicate or replace. Ampleforth, instead of trying to eliminate price volatility like other stablecoins, has simply moved the volatility to supply.

Moving volatility to supply means that AMPL is not affected by major market shocks. For instance, if a selling frenzy sprung on Bitcoin, the price may decline rapidly and cause a panic as people's wealth diminishes. For Ampleforth, if a major selloff occurrs, the volatility is just moved into the supply, so less AMPL will be circulating but your percentage of the supply does not change.

An additional added benefit of this - AMPL requires no collateralization as it is very similar to Bitcoin, only with a volatile supply and the ability to be used in smart contracts.

Ampleforth automatically 'rebases' daily to adjust to the level of demand. In other words:

  • Higher demand - price rises so the supply is increased
  • Lower demand - price decreases so the supply is decreased

This allows the protocol to keep the price at the desired mark - equal to a 2019 USD adjusted for inflation. The algorithm backing Ampleforth accomplishes this seamlessly -  without error - every single day across every wallet simultaneously.

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Ampleforth + DeFi

The unique design, durability, stability, and widespread availability of the Ampleforth protocol allows it to accomplish the following:

  • It creates a stable unit of account (1 AMPL will always = 1 inflation adjusted 2019 USD)
  • It makes AMPL usable in lending/borrowing (the loan principle is never lost)
  • It makes AMPL impervious to major market volatility
  • AMPL does not require ANY collateralization to function 

Not only is AMPL able to self-adjust without transactions daily, it is also cross-chain compatible. This means AMPL is able to be utilized across different blockchains without error, making it immediately usable for cross-chain DeFi applications. This is something that needs added emphasis as the cryptocurrency space continues to become more interconnected and diverse.

With these combined qualities, Ampleforth is truly a unique asset in the cryptocurrency space. No other asset, including Bitcoin or Ethereum, has the ability to accomplish all of what Ampleforth is able to provide to the foundation of DeFi.

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Summary

A very important takeaway from all of this is that DeFi is still extremely juvenile - as is Ampleforth. The DeFi space has a substantial way to go before it matures enough for true widespread adoption. As protocols like Ampleforth continue to grow, the possibilities of seamless transactions, lending, and other financial tools grow in purpose, scope, and reliability within DeFi.

For decentralized finance to truly be a better option than traditional finance, it must be:

  • More reliable
  • Easy to use
  • Accessible
  • Trustworthy
  • Affordable for all
  • Truly decentralized   

Ampleforth is the only truly durable, stable, yet decentralized unit of account currently in the world. Other attempts at creating an algorithmic stable coin have failed as AMPL continues to grow in scope and ability. DeFi needs Ampleforth.


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zacharias
zacharias

Writer & Philosopher | Founder of RekTimes, Future Humanity


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