EDITED 15 April 2022: Recent talks within the Ampleforth Discord office hours between the AMPL team and the community have been buzzing around the coming development of an AMPL-backed stablecoin (now officially named SPOT).
All of the existing stablecoins in the market currently rely on some form of centralized collateral to operate. This is not the case with AMPL - an inflation-resistant, algorithmic unit of account. AMPL transfers volatility from price to supply, meaning that the existing supply automatically changes to an established price point (a 2019 USD adjusted for inflation) depending on demand. This is called rebasing.
As DeFi and the greater cryptoeconomy continue to expand, the need for a decentralized unit of account within the space only grows by the day. This is especially prominent as economic superpowers such as the United States make their plans to enter (see US-CBDC).
Top Things to Know:
- Ampleforth team announces plans to develop decentralized stablecoin backed by AMPL (called SPOT)
- Comes as major economic players look to enter the stablecoin market (ex. United States)
- A decentralized stablecoin would improve overall accountability in the global financial sphere
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How a Decentralized Stablecoin (SPOT) Works
The Ampleforth team has outlined the development of an AMPL-collateralized stablecoin. AMPL alone operates the same as Bitcoin does - just with a volatile supply. Introducing a decentralized stablecoin backed by AMPL has two key effects:
- Overall use case for AMPL expands
- Creates a decentralized unit of account for the DeFi ecosystem to counter centralized entrants
Consider the asset AMPL - just like any other assets in the market, it is subject to contractions in market cap. However, during periods of extended selling and heightened market fear, the asset can only contract so much (for AMPL, historically no more than 80%).
The remaining 20% of the AMPL is safe from contraction. So, a stablecoin that is utilizing AMPL as collateral would be a representation of that safe 20% (hence safeAMPL). In other words, as Kolds (Λ,B,Z) put it, SPOT is essentially the AMPL that can never be rebased away.
This has a number of key benefits to consider:
- Improved Crypto-economic Decentralization - Currently, the cryptoeconomy is dominated by collateralized stablecoins, introducing higher centralization to the system. A decentralized stablecoin provides a durable, decentralized unit of account that can be utilized in smart contracts and held to avoid both inflation & volatility
- Inflation Resistant - AMPL is an inflation-resistant asset because it is pegged to a 2019 USD. This means that as inflation increases, the target price of AMPL increases (up to $1.087 USD now). Because SPOT is backed by AMPL, it is inflation resistant.
- Unbreakable Collateral - AMPL doesn't have to worry about a depegging event simply because it has no collateral creating such a peg. AMPL can algorithmically adjust simultaneously in every wallet across blockchains each day. SPOT using AMPL as collateral inherits this durability, reinforcing its status as a stable asset.
- Expanded Market Potential - SPOT not rebasing immediately expands the entire market potential of the AMPL ecosystem. SPOT, like the Ampleforth Governance Token (see FORTH), can be easily listed on major cryptocurrency exchanges. This offers exposure to AMPL to a significantly greater proportion of the broader crypto market.
Why DeFi Needs a Decentralized Stablecoin
The purpose of the cryptoeconomy is, above all, to create accountability within the global financial sphere. This potentiality is even being directly acknowledged by world superpowers like the United States.
We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets... Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.
Centralized governments with a high degree of economic power know the potential competition in which a decentralized, digital global financial system could bring. There would be immediate, global accountability to conduct ethical financial practices - something Bitcoin was founded to introduce.
The United States is attempting to protect their own financial power through the creation of a US-CBDC, something that will greatly reduce the decentralization (and accountability) of the entire DeFi ecosystem - UNLESS a decentralized unit of account is available to scale alongside it.
This unquestionably establishes the immediate need for a decentralized stable in the market, and SPOT would provide just that.
Stablecoin Market Cap - Statistica
The market cap of stablecoins has exploded since summer 2020 with the substantial expansion of assets like Tether, USD Coin, TerraUSD, and Maker's DAI token. The total market cap is estimated to be ~$180 billion USD as of Q1-2022.
As nations gear up to enter the digital assets market, there will be further pressure on adoption and the stablecoin market, responsible for the majority of volume in crypto, will undoubtedly scale with it. This provides another opportunity for a rapid market cap expansion on AMPL, similar to what was observed in Summer 2020 (known as DeFi Summer).
The Ampleforth market cap is under $100 million USD once again as of Q1-2022. This is around the bottom of the newly expanded market cap from Summer 2020, a zone the token has held for a considerable amount of time. With the coming introduction of an AMPL-backed stablecoin, demand for AMPL is set to rise substantially over the long term.
Summary
The introduction of an AMPL-backed stablecoin would provide the cryptoeconomy with its very first truly decentralized unit of account. Free from rebasing and inflation resistant, a decentralized stablecoin like SPOT significantly improves the overall distribution of the developing digital financial system.
A decentralized stablecoin provides all of the following to the cryptoeconomy:
- Greatly improves decentralization
- Provides a robust inflation hedge that is safe from volatility
- Creates accountability within the global financial sphere
The development of AMPL was a revolutionary innovation within the crypto market. The coin provides the possibility of a robust set of financial tools that can be leveraged by distributed peer-to-peer payment networks and allow for the rapid expansion of interoperability within the DeFi space.
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