Introduction
Bitcoin is the king of cryptocurrency, and for a good reason. It’s the first cryptocurrency and one with the most monetary value. Because it is the cryptocurrency with the most monetary value, its rise and fall could easily affect the crypto-market similar to how the fall of an emperor or king in ancient times could affect the peace and prosperity of the realm. When the price of Bitcoin rises so do many altcoins but when Bitcoin’s price plummets, it takes other cryptocurrencies with it. This is correlation.
What is Correlation?
Correlation is a statistic that measures the degree of which two (quantitative) variables (Bitcoin and Altcoins) move in relation with each other. In simpler term, correlation is a form of association or dependence – similar to how most if not all cryptocurrencies prices depend on how well Bitcoin performs. Since the price of Bitcoin and other cryptocurrecy (altcoins) remained dangerously correlated, one misstep form Bitcoin could easily wipeout an investor’s assets.
Why is Correlation Bad for Altcoins and the Market?
As mentioned in my introduction the price of Bitcoin could easily affect the prices of many cryptocurrencies. When the price of Bitcoin plummets to $3k in 2019 many cryptcurrencies also lost most of their value. But it did not stop there, aside from altcoins losing most of their value, many blockchain-based startup projects failed as well. The lucky ones merged with bigger projects while the unlucky ones died off completely.
Another thing worth noting is that despite Bitcoin reaching new heights in 2020 and at the start of 2021, many altcoins that loses their value in 2018 and 2019 failed to recover at all! Some were even in worse condition today than it was during the bearish years. This proves that being too dependent on the biggest cryptocurrency (Bitcoin) is not good at all. If you want a better example of the adverse effect of correlation then look no further than Venezuela.
Venezuela is one of the world’s biggest oil exporting country and much of its economy is heavily dependent on its oil trade. During the height oil trade boom, the country and its people grew very rich. But once the world-wide demand for oil drops significantly, the country’s economy plummets as a result of being too dependent on its oil trade.
Did you see the similarities between the Venezuelan economy and the crypto-market? Just replace the Venezuelan economy with the crypto-market, and oil with Bitcoin and you’ll have the perfect reason it’s not a good idea to become too dependent on a single resource.
Ampleforth (AMPL)
Ampleforth (AMPL) is an Ethereum-based ERC-20 token. Meaning it’s a token designed to be used on the Ethereum platform. ERC-20 tokens follow certain standards that make them tradable for other tokens or to be stored in crypto wallets. Despite being an ERC-20 token, Ampleforth (AMPL) have its own economy and is not correlated to the Ethereum economy which means that any changes to the value of Ethereum would not have significant effect on the AMPL token.
Like any asset, Ampleforth’s (AMPL) price is also subject to change. But unlike other cryptocurrencies, the change is not caused or related to how well Bitcoin do on the crypto-market. Instead, the price change is a response to the demand for the tokens. If the demand is high then the price of the tokens would increase but if the demand is low then the price of the tokens would decrease.
One of the advantages of Ampleforth (AMPL) tokens was that it’s not dependent (correlated) on Bitcoin’s (or Ethereum’s) price pattern. Even if Bitcoin’s price plummets again (which was bound to happen considering how volatile cryptocurrencies were) and lose most of its monetary value, Ampleforth’s (AMPL) value would be unscathed. This is because Ampleforth (AMPL) is stable, or what those in the market would call a stablecoin.
But Ampleforth (AMPL) is not your run-of-the-mill stablecoin. It’s a stablecoin with a goal
Ampleforth’s (AMPL) goal, a rather ambitious one, is to be used as an alternative to any central bank currency or money. Although the goal sounded rather ambitious, it’s not an impossible one. This is because the price of 1 AMPL token is peg to 1 USD. Meaning, even if there’s change to the price of the token, it will not be as drastic compared to other more volatile cryptocurrency like Bitcoin.
And being a digital currency with an (almost) stable value, AMPL could be used to pay for services and commodities from online and offline stores that accepts cryptocurrencies as payment. If Ampleforth’s (AMPL) goal came to fruition, a thriving economy centered on Ampleforth (AMPL) could be realized.
Rebase
As mentioned earlier, the price of AMPL depends on the demand for the token, and not on the price of Bitcoin, Ethereum, or other cryptocurrency. But what I did not mention is that the balance on one’s crypto-wallet could also increase or decrease depending on the demand for the tokens. The people behind this system call this rebasing.
How does rebasing work?
Rebasing is not very complicated, it could even be said to be very simple. Every 24 hours, the amount of AMPL tokens on a holder’s wallet could increase or decrease depending on the price of the tokens by the end of the 24-hour timeframe. A positive rebase would increase the amount of tokens on a holder’s wallet while a negative rebase would decrease it.
So if you have, let say, 100 tokens in your wallet, that 100 tokens could change to 101+ tokens if there’s a positive rebase, or 99 and below when there’s a negative rebase. Despite the change though, the holder’s percentage share of the market would remain unchanged unless her or she bought more tokens.
Why do this?
The reason why such a system was implemented was to ensure balance between supply and demand, and to keep the economy on the platform going through trades. As most people already knew, an economy would become stagnant if money and goods were not being circulated. Healthy trades equal health economics.
Conclusion
Ampleforth has the potential to be something great. As a stablecoin, the value of the AMPL token would almost remain constant – making it a great digital currency to be used to pay for goods and services. Since it has no correlation to and do not follow Bitcoin and other cryptocurrency’s price pattern, the value of the token would not be greatly affected even if the aforementioned cryptocurrencies loses a lot of their value. Lastly, Ampleforth’s (AMPL) rebase system will ensure a healthy economy through continuous trades.
