1/ In this thread, I will explain why Ampleforth (AMPL) is the biggest facepalm in crypto history, more so than even Bitconnect. I don’t mean to say AMPL is a fraud, but after this thread if VCs/backers don’t explain themselves, this will be a fiasco when shit hits the fan.
2/ As of writing, AMPL has over half a billion dollars of market cap. Trust me, I got into crypto in late 2013 and mined Dogecoin so I’m no stranger to meme value. But I’d like to set the record straight here that AMPL is just that, a meme, and serves absolutely zero use
3/ cases and never will. In fact, it is less useful than even dogecoin. Wow. First, the idea behind Ampleforth is nothing new. As far as I’m aware, AMPL’s identical design implementation was proposed in 2016 by Ferdinando Ametrano dubbed Hayek Money.
4/ Curiously enough, no mention of his work or even his design (which is almost 100% identical to the AMPL specification) was cited in the AMPL whitepaper. Why? Are the AMPL cofounders lacking in awareness in the space that they didn’t know this exists.
5/ Would be interesting to see what @evankuo or Brandon from Ampleforth says about this, genuinely curious. In any case, it’s not a huge deal. I just thought that it was very peculiar. Here is Ametrano’s published work: (papers.ssrn.com/sol3/papers.cf…)
6/ Secondly, the same AMPL/Hayek Money design spec is actually used as an example of what NOT to do when creating a stablecoin in many whitepapers including Robert Sams’ influential Seigniorage Shares paper (github.com/rmsams/stablec…):
7/ “Price stability is not only about stabilising the unit-of-account, but also stabilising money's store-of-value. [AMPL] is designed to address the former, not the latter.
8/ It merely trades a fixed wallet balance with fluctuating coin price for a fixed coin price with fluctuating wallet balance. The net effect is that purchasing power of [an AMPL] wallet is just as volatile as a Bitcoin wallet balance.” (AMPL inserts my own)
9/ This is a self-defeating dynamic...why is this issue not even barely mentioned in the AMPL WP? This seemed very obvious to pretty much anyone with an understanding of the concept of purchasing power vs. price, but I guess less people possess that knowledge than expected.
10/ So how does AMPL work? The Ampleforth Protocol is extremely simple (and useless). It relies on the Price = Demand * Supply equation. This is like the F = ma of economics.
11/ If there’s a supply of 10 cars with a price of $1,000 at current demand, then if demand doubles (2x) then the price of each car should become $2,000. The P=D*S curve is where all stablecoin design begins. To be fair the real equation is D(Q, P) = S(Q, P), but I'm simplifying
12/ For example, all fixed supply cryptocurrencies such as BTC have a constant S (21m for BTC). Thus, the price must always change as a function of demand. A basic observation is that to keep P constant, you must be able to change the S as a function of D.
13/ Ampleforth is the ideal example of how NOT to change S as a function of D. AMPL keeps the price of each token at $1 by changing the supply every 24 hour period, called a rebase. The issue (or innovation) is that the supply change is distributed to every AMPL wallet pro rata.
14/ For example, you hold 100 AMPLs, demand for AMPLs double, according to P=D*S curve, people will pay $2 per token. To get price back to $1/AMPL, the protocol doubles everyone’s wallet balances during the next rebase so then you wake up with 200 AMPLs in your wallet worth $2.
15/ Because now there is twice as much AMPL in everyone’s wallet and some people will sell their excess AMPLs, the market will be saturated with more AMPL until the price slowly moves back towards $1.
16/ If the price of AMPL goes to $.50 because demand has halved, then the protocol halves every wallet balance so you wake up to find your 100 AMPL wallet with only 50 AMPLs after the rebase. Not fun, but hey! AMPL is still going to be $1 even if you have half of it right?
17/ Wrong, not only does that create selling pressure and would encourage holders of a negative rebase to dump (to which AMPL keeps rebasing down in a spiral) but even worse:
18/ Reducing the value of every single user’s wallet to recover the price does not do anything meaningful in any way.
19/ If I have 100 AMPLs worth $1, I assume that I can purchase 1 chair that’s priced at $100 or 10 hamburgers priced at $10. If AMPL drops below $1 and now my wallet rebases to 90 AMPLs worth $1, what good does that do me that the AMPLs are still worth $1 each?
20/ I can’t purchase the same things as I could before the rebase. I no longer have enough money to purchase the $100 chair nor can I buy 10 burgers (I can only buy 9). The purchasing power of my AMPLs are as volatile as the price of a fixed supply cryptocurrency like Bitcoin.
21/ If I have 1 BTC worth $100, then after some volatility, it is now worth $90, then I still can’t buy that $100 chair nor can I buy 10 hamburgers. It is the same situation, it’s the same problem. We’ve literally just replaced the word “price” for “quantity.”
22/ The price of your AMPLs stay the same, but their quantity changes. This isn’t any sort of financial innovation at all, in fact, it’s still textbook volatility since price is not the important thing -- purchasing power is. Let’s look at it the other way.
23/ If I have 100 AMPLs worth $1 and AMPL doubles in demand so my wallet rebases to 200 AMPLs worth $1, then fantastic! Now I can buy 2 $100 chairs and 20 $10 hamburgers. How is this any different than owning 1 BTC worth $100 then waking up to see it has doubled in price to $200?
24/ This straightforward example shows clearly that talking about the “price stability” of stablecoins is a misnomer and completely misses the point.
25/ What we really care about is the purchasing power stability: the idea that what I have in my wallet can purchase the same exact thing today as it can tomorrow (or an extended period of time compared to more volatile assets).
26/ AMPL cannot ever do this, not now or ever. Not if any dapps use it or any DeFi is layered over it. This is because at the protocol level, AMPL rebases every wallet and there is no way to opt out of that. Opting out of the rebase forks the protocol and creates a new token.
27/ Everything you can do with BTC you can do with AMPL and vice versa, no exceptions. Not a single person has been able to actually articulate a concrete example about a product that can be built with only AMPL that yields useful value that cannot be done with a volatile crypto
28/ That’s because there are no examples, they are by definition the same asset class. These very basic example are meant to illustrate that AMPL has no intrinsic difference in behavior than volatile cryptocurrency, its value is simply calculated in a new way:
29/ Market cap divided by units of AMPL in your wallet vs. price times the units of coins in your wallet. Apparently this is enough to to raise millions of dollars and half a billion market cap. I wish I knew that so I could have done this....
30/ So if price isn’t the real measure of stability and purchasing power (PP) is, then how do we stabilize PP? The correct way is to separate units of stability and units of volatility. At minimum, any real algorithmic stablecoin system requires at the very least 2 tokens.
31/ A different party needs to be able to take the risk of downside of reduction in coin supply to potentially earn the upside of increasing coin supply so that the protocol can shield the stablecoin holders from any changes in PP.
32/ Essentially, you need to separate two distinct parties, those who want to risk not being able to buy that $100 chair due to a change in purchasing power and the other party who wants to be certain their wallet can purchase that $100 chair. This is how the Fed works too.
33/ When dollars need to be retracted from supply, the Fed sells bonds and allows investors who want to give up dollars to hold an interest paying asset to do so.
34/ It does not go into depository accounts at the Fed and change their dollar balances uniformly. If it was that simple, there’s little reason why the Fed wouldn’t have done this economic magic in its 107 years of existence.
35/ “AMPL is not meant to be a stablecoin, or at least not yet” some, including the founders say. No..AMPL is not meant to be a stablecoin because it literally cannot be one by definition. Not because its market cap is too small or any other reason.
36/ It cannot actually be a stable medium of exchange because it, quite literally, is not able to achieve any form of meaningful stability under any conceivable conditions.
37/ Ask yourself what exactly does it mean to have a stable unit of account? It SHOULD mean that when you have 100 units of something worth $1 each, it will remain $100 and 100 units. It means the PURCHASING POWER of your wallet will not change.
38/ It means that if the price of the goods don’t change in the real world, you can buy the same goods across some extended period of time.
39/ Ampleforth is an extremely valuable cryptocurrency in so much that, apparently, most of the crypto space needs to learn basic economic concepts. I guess the most valuable use case of AMPL is for people to learn this basic lesson. And to have fun with memes, my guilty pleasure
40/ Other people say that AMPLs are the building blocks of DeFi and other financial products. I say fantastic, they could be, but by definition they don’t bring any new unique value proposition than a fixed supply, volatile cryptocurrency.
41/ I’ve illustrated why above, if you disagree, then please give illustrative counterexamples other than vague notions of “financial innovation.”
42/ So essentially, if you believe that a large market cap stabilizes the purchasing power of an asset, then why are you holding AMPL? Hold BTC/ETH and wait until/if its market cap reaches another order of magnitude larger.
43/ People holding AMPL either 1) don’t understand that purchasing power must be stabilized to be a good medium of exchange. OR 2) understand this but think they can make money by selling newly minted AMPLs to others until everyone understands this and the market cap dumps.
44/ Finally, nowhere do I claim that AMPL is a scam or a fraud. It’s just a fun, meme game. That’s all. Thinking that it is anything other than a game shows a fundamental lack of understanding of economics. So I’d like to know what @evankuo and Brandon believe they're creating?
45/ Why does the word purchasing power not appear a single time in the WP or website? Do you guys not know what that concept is? If you know what purchasing power is, then why not even legitimately address the claim? (because there is no way to address it, AMPL has no answer...)
46/ I genuinely tried my best to read everything that was online about Ampleforth from the whitepaper to posts etc. The more I read it, the more dumbfounded I became. I genuinely would like to ask the AMPL cofounders to explain themselves. Or better yet, debate me over zoom live!
47/ If you do decide to respond, please give concrete examples in your post the same way I did above. Give a coherent example of when AMPL would be better used than BTC (or any volatile crypto).
48/ Disclosures: I trade AMPL 4 teh lolz. I’m also working on an algorithmic stablecoin project frax.finance. I promise Frax actually makes sense and is an actual stablecoin. But I can’t promise you the level of dank AMPL memes around our project, at least not yet ;)
