There are numerous cryptocurrencies out there, with new ones being launched every single day. For a cryptocurrency to thrive, it must have a competitive advantage- that is, a feature (or multiple features) that distinguish it from its competition. This is where Ampleforth comes in: it is a new cryptocurrency that is different from the existing ones and it is trying to solve some of the problems that are inherent in our monetary system today. In this article, we will talk about what Ampleforth is, how it works, and how it is different from the others.
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What is Ampleforth?
Ampleforth is a new cryptocurrency that is gaining traction, whose native token is AMPL. The currency is an ERC-20 token that runs on the Ethereum blockchain. The key feature that distinguishes Ampleforth from all the other cryptocurrencies out there is its automatic adjustment of the token supply in response to the changes in the token demand. This is to ensure that there is never a shortage or surplus of the token in the market. For example, let’s say the market currently demands 30,000 AMPL but the supply is only 20,000 AMPL. To meet this demand, the supply of AMPL will automatically increase by 10,000.
So, what does this mean for you? The main benefit of this system is that the purchasing power of the money you have in your wallet will always be the same.
Imagine you have $10,000 in your checking account. For the sake of simplicity, also assume that the total money supply in the economy is $1,000,000. This means that you own 1% of the economy’s total money supply. One day, the central bank all of a sudden decides to mint more money, and therefore the money supply increases to $2,000,000. This results in your share of the economy’s money supply diluting to 0.5%, thereby reducing the purchasing power- or value- of your money.
This is what Ampleforth aims to prevent. In the event that a supply shock- or a sudden change to the supply of the token- occurs, your wallet balances will automatically be changed accordingly. Hence, if the supply of AMPL doubles, your wallet balances will also double. If the supply of AMPL reduces by half, so will your wallet balances. This prevents the value of your money from fluctuating because of external events.
Ampleforth has less correlation to other cryptos
Another feature of AMPL is that it is not very strongly correlated to other cryptocurrencies. Other cryptocurrencies, such as Bitcoin, Litecoin, and Ether have a correlation of 0.7. This means that 70% of the time, the prices of these coins rose and fell simultaneously. This makes it difficult for a cryptocurrency investor to diversify his/her portfolio as one token (e.g. Ether) is not very effective in offsetting the losses of another token (e.g. Bitcoin).
Ampleforth presents a solution: it is not very strongly correlated with other cryptocurrencies, which allows you to mitigate risk. The following are the exact correlation figures of Ampleforth with other currencies:
- Bitcoin: 0.42
- Ether: 0.38
- Ripple: 0.44
Ampleforth real world use cases
The following are the use cases that Ampleforth is suitable for:
- To diversify your cryptocurrency portfolio: This is relatively more stable compared to cryptocurrencies like Bitcoin. If you have a risky cryptocurrency like Bitcoin in your investment portfolio, adding Ampleforth to the mix can help you mitigate your risk.
- As collateral for a decentralized bank: Suppose you want to take a loan from a bank. The bank will ask you to pledge collateral- an asset you own that can be used to secure a loan. Examples of assets that you can use as collateral include property and equipment. This means that if you are unable to pay off the debt within the agreed time period, the bank can take your collateral.
- However, pledging assets like property can be difficult if you are taking a loan from a decentralized bank. This is why it makes more sense to use a digital asset- like cryptocurrency- as collateral.
- As an alternative to fiat money: Ampleforth’s unique protocols make it a great alternative to the fiat money (like notes and coins) issued by central banks. We will be exploring these features in-depth below.
How is Ampleforth different?
In this section, we’ll summarize the main features of Ampleforth and talk about how it is different from Bitcoin, US dollar, and Dai (a stablecoin cryptocurrency).
As listed on its official website, the following are the main features of Ampleforth:
- Rules-based: This means that the token’s movements are dictated by a set of programmed rules, which makes them predictable.
- Elastic: As we’ve seen, this means that the supply of AMPL changes based on the price and demand.
- Bankless: You don’t need a financial institution like a bank to handle transactions- everything is decentralized and peer-to-peer.
- Non-dilutive: Your share of the token remains the same unless you decide to sell some of it or buy more of it.
- Speculative: You don’t have to directly buy the token. Instead, you can buy derivatives of the token (such as futures) to speculate on its price.
Bitcoin also has all of these features except elasticity. In fact, Bitcoin is perfectly inelastic as there can only be a fixed number of Bitcoins that can ever be mined: 21 million. Ampleforth, on the other hand, its supply is elastic.
The US dollar has only one feature on this list: elasticity. This is mainly because the Federal Reserve (the central bank of the US) adjusts the supply of its currency depending on the market situation.
On the other hand, Dai has two of these features: it is rules-based, as it is a digital currency, and it is elastic.
With its unique features, Ampleforth offers great promise as a cryptocurrency and has the potential to transform decentralized finance. It is supply-elastic and non-dilutive, which creates a fairer monetary system. It is also not very strongly correlated to other cryptocurrencies, making it a great instrument for investors who want to diversify their portfolios. However, will AMPL ever become legal tender? We’ll have to wait to find out.