If you want to read Part 1 click here
What are the difficulties / risks in Ampleforth? What if the price keeps falling in a vortex?
Supply cuts in Ampleforth only occur when the price drops below a certain level. So the first question that comes to mind is: What if the price decreases and does not rise back due to the decrease in supply, if the supply falls a little more because the price does not rise after a while - do we enter an endless cycle?
There is actually a similar risk for Bitcoin or any type of token. Panic starts when the price goes down, sales goes up, then the price falls further, more like panic. But although it has experienced similar declines many times in the past, Bitcoin has finally recovered. There seems to be a more dramatic possibility of experiencing this in Ampleforth. Not only the price is decreasing, but also the quantity you have. A completely different system experiment that we are not used to.
The argument of those who think that the price will come back afterwards is this: First of all, although the supply changes (called rebase) that will coincide with the decreases in AMPL are calculated on a daily basis, the increases are made within a 10-day term. In other words, an increase of 10% means an increase of 1% every day.
If the price and supply went down together, the value of the entire system would actually drop dramatically - so this would give outsiders the opportunity to buy cheaply. On the other hand, if the price of the holders of the token falls this much, they do not sell the products they have cheap it is thought that it will rather wait - just like it did with Bitcoin in the past. Therefore, trust in the system is very critical and Ampleforth needs time to build this trust.
The main indicator an AMPL investor should look at when evaluating the token should be the total value of the entire AMPL network, not the token price, unlike all other tokens.
Are derivative instruments a problem for AMPL?
One of the question marks regarding AMPL is the "short selling" status of the crypto money listed on central exchanges like FTX as a result of derivative transactions. For those who are not very familiar, let's repeat: Short selling is to sell a stock (or token) you don't have at a later time, provided that you put it back. You do this especially when you expect the price to drop. As we mentioned above, AMPL has an interesting system that reduces the value of the entire network in the first step in order to reach the balance price. Short sales can make these whole network value changes occur much faster. So for those who are skeptical, the above vortex can run much faster and crash the system, while for AMPL advocates, it can bounce back with the rapid fall in price. It can happen quickly. Which side would you like to believe? The choice is yours.
Will there be sufficient demand / adaptation?
We talked about three phases regarding Ampleforth's future plans. At the beginning, there is no such thing as "let me build a stable money". First of all, it wants to offer an alternative to those who hold a cryptocurrency portfolio to distribute the risk due to its unique volatility.
If they can successfully pass this first stage, portfolio managers in the world they dream of will immediately see the opportunity for profit in the price changes in AMPL and take action and bring the value of money to the target levels. On the other hand, they will be able to use the AMPLs they hold as reserve money and borrow other money and enter other investments. Why will they not use AMPL for new investments and borrow other money? Because although AMPL's value remains the same, they will not want to miss the increases in their portfolio if demand increases. Instead of showing the AMPL as collateral, for example Tether borrowing will come in their business. It will also be a good collateral in terms of borrowing, as the AMPL value is a currency with little change. For example, 150% ETH collateral is given to get credit at MakerDAO (because ETH is very risky), while this collateral rate will be determined much lower for AMPL.
The third stage is that the AMPL value becomes more stable, attracting the attention of not only portfolio managers who want to make money by arbitrage, but also large masses to use in shopping.
All three stages above are based on dissemination and adaptation. Will this adaptation happen? This is the biggest problem. First of all, will portfolio managers spend time on AMPL with dozens of in-and-out investment opportunities in front of them? Will they ponder new parameters that they normally never deal with in other cryptocurrencies, such as examining its price movements and predicting increases in supply? Because they do not tire, the desired target as AMPL price does not come within range. With little interest, widespread will be delayed or not at all. AMPL advocates think that there were similar hesitations with Bitcoin in the past, but time is the best medicine to dispel such doubts.
