How Does AMPLEFORTH Work? DEFI Explained

so what is ample fourth how does it work under the hood and why do the number of my ample tokens keep changing every day you'll find answers to these questions in this video before we start if you're interested in learning more about decentralized finance and underlying technology subscribe to this channel and switch on the notification bell okay so what is ample fort all about ample ford in essence is a new cryptocurrency with a quite unique feature its supply is elastic and can change every day while the ownership of the amp tokens is never diluted let's explain what it actually means when it comes to money having an elastic supply allows for printing new money or removing money from the circulation depending on the demand fiat currencies such as the us dollar are good examples of money with an elastic supply as the fed can decide to print more money if there is more demand for it they can actually also decide to print it without an increase in demand but that's another story bitcoin is quite the opposite its supply is fixed and the only way to accommodate the increase in demand is for the price to go up constant price changes can be quite problematic especially when it comes to denominating things like services contracts or debt so even though elastic money supply can be quite useful to achieve price stability it comes with a certain problem dilution when the fed increases the supply of dollars by printing new money that money is put into the circulation diluting everyone else's proportion of the total supply of dollars basically making them poorer ample forth is non-dilutive this is achieved by applying supply adjustments proportionally across everyone's balances imagine the following situation let's say the fed prints an extra five percent of the total supply of u.s dollars to meet an increase in demand this extra five percent would be proportionally distributed across all the accounts holding usd so if you had one thousand dollars in your bank account after the supply chain you would end up with 1050 that scenario would make the u.s dollar non-dilutive as your proportion of the overall supply of dollars would remain the same after the adjustment so to summarize this part bitcoin is inelastic and non-dilutive fiat money such as the us dollar is elastic but dilutive ample force is both elastic and non-dilutive so even though the number of your ample tokens can change automatically you'll always own the same proportion of the overall supply by having this unique feature ample ford tries to solve the following problems inelasticity problem fixed supply cryptocurrencies are vulnerable to sudden shocks in demand that make denominating things harder diversification problem today's cryptocurrencies are tightly correlated ample's unique incentives in theory allow it to decouple from bitcoin's price pattern let's see how this unique feature of ample fort can be achieved there are three states that the ample fort protocol can be in these are expansion contraction or equilibrium before we explain how they work let's introduce one more concept price oracles price oracles are used to provide external prices to smart contracts there are two main functions of price oracles in ample ford the first one is to provide a current exchange rate of ample to us dollar the second one is to provide a consumer price index value the cpi is used to establish a target price which is a price of one ample that the ample ford protocol tries to aim for the target price is currently at 1.009 usd and it represents the 2019 purchasing power of the us dollar as represented by cpi the target price plays a very important part of the protocol as it's used in conjunction with the current price to determine if there should be a change in the total supply of ample now let's get back to the ample fourth states expansion in this state the supply of ample tokens is proportionally increased across all the wallets holding ample tokens let's go to a quick example imagine alice buys one ample for one dollar as demand for ample suddenly increases one ample is now worth two dollars which is above our target price of 1.009 dollars in this case the ample force protocol will seek a price supply equilibrium by increasing the supply of ample so alice ends up with two ample each worth one dollar contraction as expected this is the exact opposite of the expansion state when the system is in their contraction state the supply of ample tokens is proportionally decreased across all the wallets holding amp tokens so if alice buys one ample for one dollar and due to a decrease in demand the price of ample drops to half a dollar the system will reduce the supply of ample alice ends up with 0.5 ample worth half a dollar as the price of one ample reverts back to one dollar one important thing to add here is that the algorithm can only affect the supply of ample it cannot of course dictate the price directly it's up to external players to notice the supply chain and this should in theory drive the price in the correct direction the last state which is equilibrium is the only state where the algorithm doesn't seek to increase or decrease the supply of ample this is basically a state where there is no need to do anything as the current price is within range of the target price expansion and contraction are achieved automatically by a rebase function in the protocol every day at approximately 2 am utc time the rebase function can be called the function makes use of price oracles to get the target price and the current price of ample or to be precise a 24 hour volume weighted average price if the current price of ample is within 5 of the target price the algorithm classifies the state as equilibrium and doesn't change the supply of ample if the current price is above the target price plus five percent of the target price the supply expands and if the current price is below the target price minus five percent of the target price the supply contracts as an example if the current price of ample is 1.1 dollars and the price target is 1.009 dollars the system is in the expansion state as one point zero zero nine dollars plus one point zero zero nine dollars times five percent is equal to one point zero five nine four five dollars and one point one dollars is higher than the max price that can still qualify as equilibrium the percentage that is used in that rebase function is also called the equilibrium threshold it's one of the two main parameters in the ample fourth protocol the second parameter represents a smoothing factor also called a dampening factor the dampening factor is used to avoid sharp supply changes currently the protocol spreads the supply chain over a period of 10 days this means that if for example the rebase function results in a 50 expansion that fifty percent would be spread over ten days so it would result in a five percent supply increase on the day when the rebase function is called the rebase function is executed no more than once every 24 hours this operation is also stateless meaning that the protocol has no memory of the previous day's supply chain so it has to recompute the potential supply change every day based on the latest information the ample fraud protocol is implemented as a set of smart contracts deployed to the ethereum blockchain the ample token implements the erc20 interface and can be easily exchanged on decentralized exchanges such as uniswap according to the documentation the protocol is chain agnostic and ample tokens can exist simultaneously on multiple platforms so there is also a chance of seeing ample tokens on other blockchains in the future ample forth in the short term aims at diversifying cryptocurrency portfolios by being less correlated to the price of bitcoin compared to other cryptocurrencies in the medium term it aims at being used as collateral in design protocols the long-term goal for ample forth is to create an alternative to central bank money that is adaptable to shocks to incentivize more unchain liquidity ample fort created an incentive program called geyser where the liquidity providers of the uni swap ample etherpool can stake their lp tokens on geyser and be rewarded with extra ample tokens if you're not sure what it all means you can check out my video on liquidity pools and the link to the ample ford geyser website in the description box below when it comes to the ample tokens the main thing to remember is to always look at the number of tokens in addition to the price to see the full picture of your portfolio ample fort is clearly one of the most interesting projects in the cryptocurrency space right now but we have to remember that is still pretty much a monetary experiment that may or may not work so what do you think about ample fort do you think it has a chance to be used as the money of the future comment down below also check out my other videos on decentralized finance and as always hit the like button and subscribe to my channel for more defy content thanks for watching

Channel: Finematics

Views: 72,061

Keywords: ampleforth, defi, decentralized finance, crypto, altcoins, bitcoin, ethereum, AMPL, AMPL explained, cryptocurrencies, elastic supply, non-dilutive

Id: e-8yjmsshFg

Length: 11min 53sec (713 seconds)

Published: Mon Jul 27 2020