Ampleforth Correction (Protocol working as intended).

A few days ago, I had written this post about the unexpected hike in the price of Ampleforth (AMPL) against the USDT stablecoin.... and at that time, the market rate for AMPL-->USDT was about 3 USDT/AMPL.... and in the recent days, it was peaking over 4 USDT/AMPL!

Now, if you remember from the previous post, Ampleforth is an attempt to create a perfectly elastic stablecoin that is akin to the way that fiat works. So, the protocol is aiming to target a price of 1 USD (2019 value, accounted for inflation) at all times.

The method by which this occurs is via the elastic inflation of the token called a rebase which occurs once per day. When the weighted 24 hour price of the AMPL token (as provided by centralised and decentralised oracles) is above a certain tight range, tokens are printed and allocated to existing wallets in a way that preserves there relative size against the total supply, and conversely, when the price of the AMPL token is BELOW the target range, the total supply shrinks as tokens are burnt whilst keeping the relative wallet sizes.

What this results in is a daily positive or negative "airdrop" which either serves to expand or dilute the total supply of the tokens. So, with a greater abundance of tokens, people are incentivised to sell to bring the price down.

However, with the launch of the Uniswap V2 AMPL liquidity pool there was an incentive called Geyser which aimed to reward providers to the liquidity pool with AMPL tokens. This led to price spike over the last few days as AMPL tokens were in high demand to try and capture this reward pool, and it led to the USD peg being left very far behind (with the peak on Kucoin reaching a high of over 4 USDT/AMPL!

This was combined with the lack of understanding about how the protocol worked as evidenced by some Twitter posts saying something along the lines of "so, if the price goes up, I get airdropped MORE tokens??? AMPL to the moon!". Sadly, that is not the way that the protocol works, and the printing of AMPL tokens for the rebase is NOT an airdrop, but a way to debase the token by dilution.

So, at this point... one of two things was bound to happen:

The protocol would work as intended, and with enough excess printing, people would start to take profits in a big way and drive the price of the token back to the USD peg.
There would be a loop where no one would sell in sufficient quantity and the price would remain way OVER the peg and the re-basing would have no effect to rectify that.

Now, I was of the firm understanding that the first option was the ONLY likely option... as the price would keep rising until someone started dumping the tokens to take profit... the only question was at what price would that be? 3 USDT? 4 USDT? 100USDT? More?

I had placed a huge spread of sell orders from 2.5 USDT all the way up to 10000 USDT (mostly clustered less than 5 USDT, but you can't blame one for hoping for a fat finger event!). I was already surprised when the price reached 3 USDT and then 3.5 USDT over the last couple days... I was starting to wonder if the protocol would work as intended or if human greed had finally been overcome and no-one would seek to take profits!

So, imagine by delight when I woke this morning to see that overnight... the protocol and human nature HAD kicked in... and the AMPL had fallen from over 4 USDT to around 1.4 USDT! Perfect... and on the way down, I had the counter buy orders kicking in all the way down (and further...) to recover (and enlarging) my relative size against the total supply... If I'm lucky, we will fall further to the contraction territory when the wallet amounts contract (you lose tokens in the rebase), which would allow my purchase orders to disproportionately increase my relative size. That said, I'm a cautious gambler... and I'm not betting everything on that happening... the only thing that I bet on with AMPL, is the fact that the protocol will always be seeking that 1 USDT peg... the only uncertain element is the time in which it will kick in towards that peg!

So, in wrapping up, Ampleforth is a really interesting currency that tries to emulate a perfectly elastic supply to serve as a hedge against volatility. I would say that in this recent test has been a successful test of the protocol... it is a project that is often derided by many as "nerd money", but I do think that there is an interesting experiment in the works here!

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