17 January 2022: Ampleforth (AMPL) is arguably the most misinterpreted cryptocurrency on the market - possibly ever. AMPL operates unlike anything else, a fact that leads many within the cryptocurrency community to misunderstand what it is, how it works, and in what way to profit from it. Before we can jump into how volatility works on Ampleforth, it is important to address some key misconceptions.
Here are some common things everyone gets wrong about AMPL:
- AMPL is a stablecoin - FALSE. Stablecoins operate exactly like how they sound - they are stable assets in which a unit of account is preserved and volatility is near zero. In other words, these are safe assets where capital can be placed to stay safe from the volatility in the market by utilizing collateral to promote trust in the pegged $1 price. AMPL is not a stablecoin because it still has normal volatility and does not need collateral.
- Price action on AMPL is most important - FALSE. The price action on AMPL is related to how the algorithm is rebasing to reach its pegged target of a 2019 inflation adjusted USD (which has climbed up to 1.07). When the price falls below this mark, it means the supply of Ampleforth will negatively rebase to pump it back to 1.07. When the price goes above this mark, the supply expands to bring the price back down.
- During negative rebases, I am losing my share of Ampleforth - FALSE. For any other coin in the cryptocurrency space, having less of a coin means having less of a purchased percentage of the total supply. For Ampleforth, this is not true. While the balance of AMPLs in your wallet may fluctuate, your percentage share of the total network does not change.
Deeper Dive - Volatility of AMPL
With a basic understanding of the three points above, it becomes easier to understand how AMPL works. The protocol is essentially trying to do one thing better than any other cryptocurrency - be a decentralized unit of account. AMPL requires ZERO collateral for it to remain pegged to the 2019 inflation adjusted USD. This is where the common misconception of it being a stablecoin like Tether or USDC comes from.
In a way, AMPL is no different than that of Bitcoin except for one key point - AMPL has volatility in the supply while Bitcoin has volatility in the price. That is it. So instead of trading the price action on AMPL, to maximize gains the total supply needs to be traded. When the supply diminishes, that is what would be considered a dip on an asset like BTC. When the supply expands, this is where gains are made.
Remember - the supply changing means the AMPL in each wallet is also changing but the share of the network will always remain the same. So how do you make money on AMPL? By purchasing (or earning) AMPL when the supply is low or has decreased for a time. Then, when the supply increases again, gains are made in the form of an expanded total supply of AMPL which will increase the holdings in your wallet.
While Ampleforth can be rather difficult to grasp from a quick glance, a deeper look into how it functions demonstrates that it is no different than other cryptocurrency assets like BTC or Ethereum. The only difference is that Ampleforth shifts volatility to supply and employs an automatic rebasing algorithm that works simutaneously across all wallets & all blockchains each night.
Ampleforth holds the value in being an unshakable unit of account without the need for centralized collateral of ANY kind. This is the game changer for decentralized finance (DeFi) as it provides a means for DeFi to not only go completely cross chain but also move away from centralization, ensuring the space holds true to its name.
Want to learn more about AMPL? Still confused? DM the author on Twitter for a deeper explanation.
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