OpenFi: Ampleforth
For this week, I’ll be looking at Ampleforth, a rebasing stablecoin that uses smart contracts to adjust its supply and token price.
Disclaimer: The following piece is simply a summary of my opinions and should not be construed as investment advice or regulatory analysis.
O: Opportunity - How large is the Total Addressable Market? Does the project disrupt an existing market, or does it create a new market?
Score: 3/5
The team at Ampleforth has developed a rebasing stablecoin (AMPL) that is uncorrelated with other assets with an elastic supply. Stablecoins come in many forms, with most generally being collateralized and pegged to a specific currency, like USD for instance. While stablecoins aren't a novel concept, this iteration introduces rebasing, or the ability to modify the total supply of the AMPL token to achieve a consistent token price.
The current market of stablecoins is dominated by collateralized USD-backed stablecoins. Based on Coin Market Cap, The largest two, USDT and USDC, dominate the market share with $35 billion and $8.6 billion market caps respectively. The current market cap of all stablecoins hovers around $51 billion. In comparison, Ampleforth has a total market cap of around $310 million. While this is already quite sizable, stablecoins are also uniquely positioned for further growth. For one, stablecoins allow individuals and institutions to leverage the technical features and security of public protocols without being subject to the volatility of other types of cryptocurrencies.
Central banks around the world are also experimenting with their own digital currencies. These will most likely take the form of stablecoins:
China is one of the nations at the forefront of such efforts. Over this year's Lunar New Year, China handed out over $1.5 million in RMB stablecoins to citizens of Beijing to spend on JD.com's e-commerce platform.
The OCC in the US also ruled in January of this year that federally chartered banks can use stablecoins to issue payments and in other regulated banking activities.
Government officials and regulators around the world are having conversations about the mainstream adoption of stablecoins. There are a lot of different ways to implement, and new projects like Ampleforth have been innovating heavily to deliver products with novel approaches.
P: Product - How innovative and differentiated is the product? Is there product-market fit? How easy is it to use the product (i.e. good user interface and experience)?
Score: 3/5
AMPL is an ERC-20 token. Each token has a price target of US$1. The supply is rebased once daily to reach that price target. Currently, it trades at around $0.85. Looking at the dashboard on the project site, users can see that as the token price increases, the token supply automatically adjusts to get the price closer to the target.
Looking at the charts below, rebasing does not always adjust the token’s price to the $1 price target instantly. In the last month, AMPL has fluctuated from as high as $1.72 to as low as $0.78.
AMPL’s token price takes time to adjust to daily rebasing.
Supply changes have been relatively stable in recent weeks.
The token is traded on Uniswap, Bitfinex, FTX, and other exchanges. In my own testing, the only thing I was really able to do was stake AMPL on one of their liquidity mining programs. By providing liquidity to these AMM pools, I was able to earn more AMPLs as long as I kept staking. There aren't many applications that currently support AMPL though that may be due to technical difficulties with rebasing tokens.
I do like how the team is prioritizing liquidity first. One way they are doing this is by expanding Ampleforth beyond Ethereum, becoming an “independent currency in a multi-chain world.” The more buy-in for stablecoins, the better.
E: Experience - Does the team have any previous experience building software and technology? Is the team well-versed in blockchain? What previous experience does the team have to ensure success?
Score: 3.5/5
Ampleforth has seven core team members listed on its project website. Key engineering team members include CEO Evan Kuo, Co-Founder Brandon Iles, Ahmed Naguib Aly, and Nithin Krishma. All engineering team members have degrees in computer science from top-tier institutions like UC Berkeley, Rice University, and USC. Both Brandon and Ahmed are ex-Google. Most members come from traditional backgrounds with little prior work experience in crypto. Given all that the team has accomplished to date, this does not seem to be holding them back.
The project also has a solid group of investors. These include Coinbase founder Brian Armstrong, True Ventures, Pantera Capital, Huobi Capital, Spartan Group, and more. The advisory board includes members from top companies and organizations like Facebook, Stanford University, MIT, and the Diem Foundation.
N: Network Effects - Will more people in the network benefit when others join? Are there high switching costs and stickiness in using the platform?
Score: 2/5
Money, at its core, serves as a means of exchange. For stablecoins, especially rebasing ones like Ampleforth, to be successful, they must acquire enough users and liquidity. As our good friend Haseeb Qureshi from Dragonfly Capital puts it in his analysis, "If enough people believe that the system will survive, that belief can lead to a virtuous cycle that ensures its survival."
The more value that is locked in the system, the more resilient the system is to shocks in supply and demand. Because technical non-collateralized stablecoins are not tied to crypto or broader asset markets, a sudden market crash could bring their value to zero given there's no collateral supporting its value. Ampleforth does a good job approaching and addressing this by being very transparent with platform data and supply changes to build trust.
The Geyser liquidity mining program also incentivized users to provide liquidity to AMPL pools on Uniswap. Prior to launch, the majority of AMPLs were owned by VCs and users who participated in the initial exchange offering. The liquidity mining program put more tokens into more hands and greatly expanded the Ampleforth community. Beyond that, there aren't that many opportunities to use AMPL tokens in the broader ecosystem yet. Once more platforms adopt Ampleforth alongside other stablecoins like USDT and USDC, we'll see more network effects develop that positively reinforce the overall system.
F: Fundamentals: Do the underlying unit economics make sense within the current network? How quickly are users growing? How much value has been transacted or locked up?
Score: 3.5/5
Getting into the technical details of Ampleforth could be a whole separate post. The project page has a nice write up on the economics of the platform for those interested. The whitepaper also covers token mechanisms in more detail. In short, the Ampleforth protocol adjusts the supply of tokens based on the price on the open market. This creates a feedback loop that adjusts the price programmatically with no intermediaries. The result is a token that's intended to represent base-level currency or the fundamental data points required for transactions. When the US went off the gold standard, the fiat USD essentially became uncollateralized. The concept is similar here when we're talking about crypto.
Another interesting point is that Ampleforth has no need for governance for its pricing model. Smart contracts dictate the entire supply rebasing process. While the USD is subject to interest rate adjustments and drastic increases in supply, Ampleforth's approach takes out the intermediaries and possible human error in the process. In the diagram below, the Ampleforth protocol covers the "Policy" aspect automatically.
The Ampleforth protocol's fundamentals seem sound and the team has made solid progress to date to fund the system. Once more applications adopt AMPL, the protocol will become more secure as liquidity increases and volatility decreases.
I: Incentives - Are there proper cryptoeconomic incentives in place for network stakeholders and users to support blitzscaling?
Score: 3/5
As I mentioned above, Ampleforth runs a staking program called Ampleforth Geysers. There are currently four active Geysers where users can stake AMPL tokens, along with others in Balancer, Uniswap, and Sushiswap pools. Depending on the amount and how long you stake, you are able to earn rewards in AMPL tokens. These ranged from 10% to 72% APY depending on the pool.
These rates are higher than pretty much any other staking program out there. This is great because, beyond this program, there isn't much else to get network stakeholders excited. I like the concept and hope they expand the program in the near future.
Total Score: 18/30
Overall, I like what Ampleforth is bringing to DeFi. Rebasing is a relatively new concept to most users in the ecosystem. Adoption will be key, both in terms of application integrations and users using AMPL as a medium of exchange. I’ll be watching closely as the project develops alongside other stablecoins in the ecosystem.