I've been following this project for a few months now, well ever since @mr_wiki gave us a really good summary article of the project back in March.
https://www.publish0x.com/cryptocurrency/what-is-ampleforth-ampl-a-comprehensive-guide-to-understandi-xoeenn
Since then there have been plenty of folks talking about this project and with the advent of the Geyser Program (for incentivizing liquidity), the whole system went a little crazy, peaking in the region of >$3 per AMPL. Now while that doesn't sound like a lot, given that the system is designed to increase the number of tokens in people wallets for all the time that it is above $1.009 this meant that people saw their wallet balances go up and the relative value of the overall holding increase.
A few day ago now the direction change, in that the supply appears to have reach a critical mass, some folks call out whales and other the tether mafia (no joke, heard in on Reddit so it must be true). In reality it doesn't matter the cause, only what has happened has lead the a drop in the value of the AMPL trading price. The knock on effect of this is that the relative value of peoples holdings has gone down. People that recently bought in are panicking a bit and as you will see if you check out the Reddit feed a lot of these fears are born out of a misunderstanding of how this system will and is designed to work.
More than anything now I wanted to share a really great ~11min video to get folks the information they need to understand the basic mechanics of this token. If you don't do any more research than this, at the very least I recommend watching the video.
Information
Initially I thought I was going to write this article to explain again how it all works, instead someone did a better job already than I ever could. This really simple explanation will help you wrap your head around the project and the gap in the current systems AMPL is trying to bridge. If you are aware of any other resources please feel free to share them.
So, after watching that video I do help it is all a little clearer at least in terms of the basic concepts. If you are wanting to take a much deeper dive into the economics of the project and trading AMPL take a look at this resource as well:
https://www.ampleforth.org/redbook/
Remember knowing is half the battle....
What has happened and what is going on?
We know now how it is supposed to work, so lets look (very briefly) at what has happened.
- Geyser dropped and price jumped up
- With price above $1 the rebasing of supply occurred
- Despite daily selling pressure after each rebase demand outweigh supply
- Peaked around #29 (maybe #28) in Market Cap Ranking
- Rebase continued as it would until the price dropped
- Price dropped consistently for last couple of day until today it dipped below the threshold
Everything that happened above was all part of that expansion phase. So now, as the price has dropped what can we expect to happe?
Well, looking back to the information earlier we know that if the price drops to below ($1.009)-5% and remains in this territory we're in the realm of the contraction phase. This means from the current position there are 3 possible options that I see:
- 1) It jumps right back up today and expansion continues (unlikely)
- 2) The price jumps up into the +/- 5% range and we reach equilibrium (maybe?)
- 3) The algorithm begins to enter the contraction phase and reduce the supply (likely I think)
So what does this mean for the coins in your wallet?
Firstly, remember if you are counting coins for AMPL while it is in the contraction or expansion phase you're playing a fools game. Remember it is your relative amount compared to the overall supply that will not change. Remember though as the price is down and if they start taking coins out of your wallet it is going to have a negative impact on your relative $ value immediately. The key with this is not to panic, I don't doubt over the coming weeks we're going to see a little more instability as traders come to grips with the mechanics of this coin.
Final Thoughts
As it currently standard the protocol seems to be doing exactly what it is designed to do. It is adjust the supply to meet demand, increasing selling pressure and effectively getting the markets to bring it back into line. That said the biggest problem the whole project/experiment has right now is a lack of understanding on how it should/does work.
Remember the golden rules:
- If you're going to invest in something make sure you understand it
- Only invest what you can afford to potentially lose
- Don't make decisions base on knee jerk reactions or emotions
I for one have a proportion of the overall AMPL supply in the game right now I'm not being incentivized to sell. However, I'm also just interested in where the ride is taking me and for one I'm definitely not burning through ETH on gas fees out of panic. So, up or down I guess I'll see what happens. Remember to do you own homework folks and think about what is right for you and your portfolio.
Hope you enjoyed the article, good luck y'all.....and happy rebasing!!
