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Introduction to Ampleforth
This is a working DRAFT of the latest Ampleforth FAQ documentation.

What is Ampleforth?

AMPL is a durable, fully-algorithmic unit of account.
The Ampleforth protocol is a series of Ethereum smart contracts that transfers the volatility of demand from price per token to the number of tokens in user wallets by automatically adjusting supply in response to demand. Daily supply adjustments are automatic and non-dilutive. Please join the Ampleforth community Discord server; our team and members of the community look forward to helping you understand and use AMPL.

Why Ampleforth?

Price volatility prevents modern day cryptocurrencies from functioning as units of account. This function of money is incredibly important because it enables the denomination of predictable contracts. Such contracts serve as fundamental building blocks of our financial system today. Creating a viable alternative to traditional financial requires a decentralized unit of account.
It is ironic that the decentralized finance (DeFi) ecosystem currently relies on stablecoins that are collateralized by traditional assets to fulfill the need for predictable contract denomination. AMPL solves this problem in a durable and blockchain-native way.
The key to AMPL's durability, is that it restores price to its target by automatically transferring the volatility of demand from price to supply, rather than attempting to remove volatility altogether. For this reason, AMPL can be used to denominate predictable contracts without reliance on centralized custodians or lenders of last resort. Although AMPL cannot fulfill all the functions of stablecoins today, it unlocks many fundamental use-cases that currently depend on custodial or unreliable approaches.

What are the Use Cases of AMPL?

AMPL can be used for long-term contract denomination. This capability propagates into a number of use cases including lending, borrowing, and the creation of derivatives.

Lending & Borrowing

The simplest AMPL use-case is lending & borrowing. Typically when a person borrows money they intend to put that money to work immediately and then pay the money back at a later date with interest. However, when a loan contract is denominated using a floating price currency like ETH, the borrower has to take the price volatility of ETH into consideration. Imagine Alice borrows 1 ETH, valued at $1000/ETH, to be paid back at a later date. If Alice sells the ETH to put $1000 to work and the price of ETH increases to $3000/ETH, she will need to spend $3000 to acquire the ETH in order to pay back her loan. Because loans denominated in price-volatile currencies are so risky, the majority of borrow activity on decentralized lending platforms (like AAVE) is denominated using centralized stablecoins. AMPL enables sustainable lending and borrowing on decentralized platforms like AAVE without any reliance on traditional assets or custodians. For more details see the Lending & Borrowing entry.

Derivatives

Derivatives are a special type of financial contract whose value depends on an underlying asset. Such contracts require a unit of account for denomination and AMPL similarly enables the creation of on-chain derivatives. To help illustrate this, let's explore one quick example:
Imagine Bob wants to split the stock-volatility of AMPL into two derivative tranches, a senior (low-risk) tranche and a junior (high-risk) tranche. Bob can author a simple smart contract that accepts a redeemable AMPL deposit and attributes 1/10 of all future supply changes to the senior tranche token while attributing 9/10 of all future supply changes to the junior tranche token.
Bob will have created a senior derivative that is considerably more volatile than the underlying AMPL and a junior derivative that is considerably less volatile, without any added oracle risk.

General Note

The use of AMPL in contract denomination has the effect of separating AMPL's price-volatility, which hovers around a stable target, from its supply volatility, which is fat-tailed like a typical cryptocurrency.

Why isn't AMPL a Stablecoin?

AMPL can be used as a long-term unit of account, but the asset should not be thought of as a stablecoin. Although contracts denominated using AMPL are long-run stable, gains and losses that arise from holding AMPL are similar to that of a typical floating price tokens. The main difference is that AMPL has a mean-reverting price distribution, but a fat-tailed stock volatility distribution.

Price Volatility Is Mean-Reverting

Recall that the Ampleforth protocol automatically adjusts the number of units in user wallets based on demand in order to restore price to its target. Although price will often rise above its target and fall below its target, it always hovers around a "mean" price target. Unlike a collateralized stablecoin, the Ampleforth protocol can take a variable amount of time to restore AMPL's price to its target because the network relies solely on the market forces arising from supply adjustments to offset changes in demand. However, AMPL's price cannot deviate from the target in an unbounded way, making it a viable unit of account.

But Stock Volatility is Fat-Tailed

Price is restored to its target by supply adjustments (or changes in stock). As demand for the Ampleforth network increases or decreases, the number of AMPL tokens that can be gained or lost, correspondingly changes. Because the quantity of AMPL tokens in a given wallet can range from near zero to infinity, just as a floating-price tokens price can range from near zero to infinity, AMPL's stock volatility is fat-tailed and similar to that of a floating-price cryptocurrency.

Supply Changes Are Non-Dilutive

The Ampleforth protocol expands and contracts proportionally to all users. For this reason, a holder of say 1% of the AMPL network will always own 1% of the network, even as the user's quantity of units changes over time, unless the user actively buys or sells. This proportional adjustment property of the protocol can never be changed and in this sense AMPL has similar long-run store of value properties to fixed supply tokens like Bitcoin.

Is AMPL a Speculative Asset?

Due to the fact that Ampleforth's supply changes are non-dilutive, the AMPL has similar store of value properties to a fixed supply token like Bitcoin. However, unlike Bitcoin the AMPL can be sustainably used as a long-run unit of account. For more information, please see the FAQ question: "Why isn't AMPL a Stablecoin?" and "What are the Use Cases of AMPL?"

Who is Using Ampleforth?

In addition to pooled wallets on centralized exchanges, at the time of writing AMPL is held in over 28K on-chain wallets. For up to date metrics check the Etherscan contract. AMPL is available for use on AAVE the world's largest largest DeFi lending platform. An AMPL derivatives platform is currently being developed by Prometheus Research Labs, please see their documentation for information on this. There are no limits to what can be created with a fully-algorithmic unit of account. If you would like to use or build with AMPL please join the dicussion on the Ampleforth community Discord server.

What are the Risks of Using AMPL?

Unlike a typical floating-price token, the Ampleforth protocol accepts price-exchange-rate information from a network of Oracles. This is what allows the protocol to automatically adjust the quantity of tokens in user wallets based on demand.
The introduction of external information always carries risks, because attacks on the external information network (Oracle Attacks) can affect supply adjustments for end users. However great care has been taken to minimize exposure to this risk. Most importantly, because AMPL is non-custodial and the policy is proportional, no funds can be stolen by an Oracle Attack. To help illustrate this, let's walk through a simple example.

Stable Transfer Application Example

Let's imagine a simple application that allows its users to send a dollar denominated amount of money from one wallet to another, we’ll call it Stable Transfer. When Alice wants to transfer $100 to Bob, the Stable Transfer contract queries an oracle for the price-exchange rate of ETH to US dollars, and then it transfers an automatically calculated quantity of ETH to Bob. Since each transfer queries an oracle to calculate an ETH amount, before transferring to its receivers, oracle requests are O(n) with the number of transfers. Each of these oracle requests presents an exploit opportunity and incurs an added cost. Finally, if an attacker exploits the exchange-rate oracle, or if there’s a bug in the oracle, senders can transfer the wrong amount of money resulting in a loss of funds.

AMPL Example

Alternatively, the AMPL equivalent of the Stable Transfer application, isn’t really an application at all. Alice would simply transfer 100 AMPL to Bob and there would be no oracle query at the time of transfer. In the case of AMPL, rebases occur once daily and oracle requests are O(1) per day. More importantly, because the protocol’s supply policy is proportional and non-dilutive, oracle attacks cannot result in the theft or redistribution of assets.

What is the FORTH token?

The FORTH token, is a governance token that puts Ampleforth protocol updates in the hands of the community. Please see the Governance forum to learn more.
Last modified 23d ago