Ampleforth is the hottest thing in these crypto streets right now. In early June 2020, it was beyond #350 on coinmarketcap, and today we can welcome it into the top 50 ranked cryptocurrency projects as it reached above $250 million market cap value.
If you have seen my previous posts, I have been pretty excited about DeFi over the past few months and, more specifically, I have been going deeper into the Ampleforth rabbit hole as the days pass.
I have even created a simple calculator to help you to keep track of your supply holdings change each day with the rebases and how much profit you have been earning. You can get access to the spreadsheet through this post.
MIP6 To Introduce $AMPL as MakerDAO Collateral
During my in-depth research, I stumbled upon a post on the MakerDAO forum that sparked my attention. This discussion was posted on June 30th and it focused on a Maker Improvement Protocol (MIP6) that concerns using the Ampleforth token, $AMPL, as an asset for collateral on the MakerDAO platform;
The post was created by user monet-supply- in which he suggests to introduce $AMPL as a form of collateral to mint stablecoin $DAI.
Monet-supply answers the standardized template to bring the proposal for adding new collateral assets forward in which he explained that $AMPL had an elastic supply which may make AMPL less correlated to other crypto assets. He also included further information about the Ampleforth team, the history of the project, and listed the exchanges where the token could be traded.
It's a standard procedure for a collateral proposal.
The first reply asked how the contracting supply could cause any additional risk to Vault holders. The user who posted the response was Aaron-Bartsch, and he was concerned that the shrinking supply of AMPL would actually cause a shrinkage in the vault collateral causing a double feedback loop of liquidations;
Wait, What are Maker and a Collateral?
Let me back up a little here just in case you have slightly confused.
Maker allows anyone to take out loans by depositing ‘collateral’ in form of cryptocurrencies such as $ETH, $USDC, or $KNC just to name a few. From there, users are able to mint a certain amount of $DAI depending on current collateralization ratios.
The problem that Aaron_Bartsch sees is that if $AMPL was used as collateral to mint $DAI, the $AMPL that is locked in the smart contract for the loan will rapidly decrease if AMPL enters the state of negative rebase . His concern is that the increased risk from the reduction in $AMPL could reduce the collateral and cause a string of liquidations in which the loans default.
Monet-supply responded by stating that this scenario might indeed occur.
Unfortunately, this response kind of killed the discussion for a while. It was not until 11 days later when the next reply would be posted by a user called ‘freiza’.
$AMPL Surge Causes Bump In Thread
Freiza decided to bump the thread to provide some more exposure to the discussion due to the increased attention that $AMPl had seen since the post was created;
Freiza continued the post to ask for clarification on some questions. His first question regarded if the Vault Smart Contract could even support the $AMPL rebases considering the current designs. His second concern regarded the sequencing of the rebase and the oracle price because if the supply changes in the vault before the oracle price changes it could cause a series of liquidations.
This is where the thread becomes interesting.
The Ugly Misunderstanding
Although Freiza’s questions were not answered by anybody in the thread, the following comment was pretty negative;
A user called ‘wjmelements’ posted a Tweet with a comment stated that $AMPL was not good collateral when he considered the 42% price drop that day.
He had also linked to the following Tweet;
The unfortunate thing about this entire discussion is the fact that both monet-supply and Aaron_Bartsch have kind of misunderstood $AMPL. They are right in stating that the debases could cause a double feedback loop of liquidations, however, they fail to realize that Ampleforth is in its early stages of life right now and should be expected to be volatile.
Why $AMP Might Be The Perfect Collateral Coin
At this moment in time, Ampleforth is in a phase of market discovery and be very volatile, however, over time, as the market cap increases ie. over $1B then over time the whole Ampleforth economics should stabilize. You can draw similar parallels to the early days of Bitcoin when it was extremely volatile. Today, Bitcoin is much less volatile than it was in its first years of 2009-2014.
Once the demand for AMPL tokens stabilizes and smoothes, it will be a strong candidate to be used as a collateral asset as Ampleforth was primarily designed to hover around $1 peg in the long run.
$AMPL holders seem to be extremely aware of this.
You see, wjmelemts probably misunderstood Ampleforth because he is citing a user a Twitter who is stating that $AMPL is ‘hilarious’ and shouldn’t work. The 42% price crash that wjmelements is inconsequential because $AMPL was at $4.00 and it dropped back to the support around $1.50 - something that $AMPL was designed to do.
Luckily, there are some users that come to the rescue on the Tweet thread and clear up any misunderstanding. Here are the top takeaways:
- Ampleforth should eventually stabilize around $1
- $AMPL is in crazy market discovery mode at the moment
- Regardless of the outcome of AMPL daily rebase, you still hold the same % of the total supply
- $AMPL is just as revolutionary as Bitcoin was in 2009
The most important thing for me to point out here is that we are observing the creation of something TOTALLY NEW in the crypto industry. A cryptocurrency with an elastic supply that rebases every 24 hours is a first of its kind.
Just like the majority of the world doubted the unique mechanism behind Bitcoin 11-years ago, in 2009, many are doubting the tech behind Ampleforth when they look at the unique elastic supply mechanism in 2020 as they doubt they unknown.
And look at what Bitcoin has turned into today…
What Other Collateral Types Does MakerDAO Use?
Initially, users could only take out loans on the MakerDAO platform by using Ethereum as a type of collateral. Over time, MakerDAO introduced the Multi Collateral Dai (MCD) in which users could use a range of different cryptocurrencies as a form of collateral. These included;
- Basic Attention Token (BAT) - November 2019 - BAT was added when MCD went live.
- Wrapped BTC (WBTC) - May 2020 - WBTC is an ERC-20 version of BTC that was added as a collateral type as a means to bring liquidity into MakerDAO from Bitcoin.
- Kyber Network (KNC) - June 2020 - KNC was added through a community governance vote in June 2020.
- 0x (ZRX) - June 2020 - ZRX was added through a community governance vote in June 2020.
- USDC - March 2020 - USDC is the stablecoin backed by Coinbase.
- Ampleforth - Coming Soon?
USDC is quite interesting because it was added to the MakerDAO as a response to the black swan event that happened earlier this year as a method to strengthen the peg of DAI to $1. USDC was actually brought in through an Executive Vote outside of the traditional voting mechanism and it brought some controversy amongst the community with the addition.
You see, although the addition of USDC might bring stability to the $1 price of DAI, it made no sense to a lot of community members why MakerDAO would be adding a centralized stablecoin such as USDC to be used as collateral in a decentralized platform that MakerDAO & stablecoin DAI were meant to be.
This is where $AMPL can easily step in as a solution to the problem as it's an asset that does not need collateral itself in the first place.
If Ampleforth can find its equilibrium and reach a decent market cap then, per its design, it will eventually settle around at $1. Maybe it's not the right time to implement AMPL just yet, however we should be discussing this possibility today so that in the future it will make total sense to back $DAI with $AMPL.
MakerDAO Takes $AMPL Under Consideration
I'm very excited for MakerDAO to list Ampleforth in their official tweet, even if it doesn't make it for a new collateral asset just yet I believe this debate should continue.
