Fragments protocol, an effort at stabilizing the buying power of cryptocurrency, has rebranded itself to Ampleforth as of today, renaming the crypto project after the “1984” character whose job is to translate poetry into Newspeak.
Ampleforth aims to preserve the unit of account and money properties of its tokens. Instead of pegging to a fixed supply of fiat capital, Ampleforth’s Amples have an elastic supply based on demand.
The way it works is pretty simple: if you bought 1 Ample at $1, and the demand for the token pushed the price up 100%, you’d now have 2 Amples instead of one. If the price of an Ample went back down, you’d likewise lose your extra Amples. You still experience losses and gains, but you know that the one Ample you bought will buy you a dollar’s worth of goods no matter what happens in the future. The concept is called a “noncollateralized stablecoin,” and differs from other stablecoins in its approach.
Elastic Supply Rather Than Elastic Valuation
Ampleforth CEO Evan Kuo believes that the market dynamics in crypto work against Bitcoin actually fulfilling its vision as a medium of exchange. One cannot from one day to the next know what your Bitcoin will buy.
He also believes that the vast majority of stablecoins are weakened by the fact that they are tied to inflationary currencies. These are the two fundamental problems Ampleforth aims to solve: making the crypto a medium of exchange by stabilizing their real-world value and thereby making them a reasonable medium of exchange.
If the price were to go down, under your original buy price, you simply have less Amples, but the same amount of value. You are rewarded with increased buying power if you buy low, but you will always have your investment. In a sense, it’s a totally experimental form of stablecoin that the market will certainly have to test. According to the crypto project’s whitepaper:
“When the price exchange rate between Amples and dollars is < 1, the protocol responds by deflating directly from coin holders, placing pressure on speculators to buy.”
The target, as with most stablecoins, is a dollar. Thus traders will have that in mind as they’re buying and selling them. It’s unclear how this will actually work on exchanges, who may not be interested in constantly updating balances. Kuo says:
“Rather than solving the Tether problem, Ampleforth is delivering on Bitcoin’s original promise. The Bitcoin protocol launched as a fair and independent alternative to fiat money. But, as we’ve seen, Bitcoin’s fixed supply and price volatility makes it virtually impossible to be used as a unit of account or medium for exchange.”
The “Stablecoin Wars” just got more interesting, that’s for sure. Ampleforth is one approach to the problem. Crypto token Dai also has more complex mechanics than simply pegging itself to a supply of fiat.
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Last modified: March 4, 2021 3:15 PM