In an interview with Real Vision senior editor Ash Bennington, the founder of Ampleforth, Evan Kuo, discussed the journey of creating Ampleforth, addressed some key misrepresentations of AMPL, and talked about where he sees Ampleforth going in the near future. Kuo states that Ampleforth is a "commodity money" and could, in time, become a respectable alternative to traditional central banking.
In the interview, Kuo goes into great detail about how he views AMPL. He states that he believes calling AMPL a stablecoin is actually a mis-characterization of the coin. Kuo says "...fundamentally the purpose of the Ampleforth protocol is not to eliminate volatility, which in the case of every other stablecoin is in fact the mission." He goes on to explain that AMPL has a risk profile similar to Bitcoin, except the difference is the volatility is transferred to the supply and away from price.Kuo identifies that a main reason Ampleforth is generally seen as a stablecoin is due to the price target. AMPL automatically scales to target the price of a CPI adjusted 2019 US dollar. However, due to the protocol simply transferring the volatility rather than trying to eliminate it, AMPL is in fact not a stablecoin (I am personally guilty of making this mistake).
Kuo says the Ampleforth protocol can be classified as a form of "commodity money." The term commodity money can be understood through Kuo's analogy to wheat. During a favorable season, like having a larger harvest of wheat you will have more AMPL. During an unfavorable season, a holder would have less AMPL. This is from the demand volatility being translated to the supply.
Because of this, AMPL is the ideal choice for actual contract denominations over price volatile coins like Bitcoin and Ethereum. Taking a loan out that has been denominated in Bitcoin, the borrow could actually owe much higher amounts back than the initial principal amount due to the rising price in Bitcoin. A $2 million loan denominated in Bitcoin back when it was a tenth of the price would be worth exponentially more, so the actual principal value of the loan is lost. In Ampleforth, this is not the case. Due to the volatility being in the supply, if you took out a $2 million loan in AMPL, you will always owe that same amount in AMPL back (roughly 2 million AMPL) plus whatever the interest is on that loan.
The interesting part about that is you could actually owe less back than the initial principal of the loan. If the supply of AMPL is 150 million when a borrower takes out the loan, and during the life of the loan the supply of AMPL increases, the principal and expected interest would remain the same but that AMPL that was borrowed could actually be more than the initial 2 million AMPL.
The next step in use case development for Ampleforth is actually lending. This is expected to first materialize through an integration on Aave (AAVE), a decentralized lending platform. In the near future, the expectation is that contracts will be able to be denominated on Aave in AMPL, a big step forward in actually utility for the protocol, putting Ampleforth's newfound cross chain compatibility to work. Integration with Aave has been a topic of enthusiastic discussion within the Ampleforth community.
Becoming the Ideal Reserve Currency
Through the characteristics of the Ampleforth protocol, Evan Kuo and his development team have created a highly durable alternative to traditional central bank currencies and even current crypto stablecoins. AMPL is a strong unit of account due to the transferal of the volatility to supply. The protocol will always automatically adjust the outstanding supply of AMPL to the appropriate amount, ensuring that 1 AMPL will always try and anchor to the price of a 2019 USD. Due to this, AMPL is protected from inflation, requires no traditional collateralization, and is not susceptible to traditional business cycle demand shocks.
In the future, once all elements of the decentralized financial space are put in place, AMPL could be a form of digital dollar that is used in contract denominations and as a stable unit of account, effectively becoming a form of reserve currency. Kuo talked about his view on current monetary systems and the pros & cons of it. An important point that Kuo touched on in the interview was the fact that establishing DeFi as a durable alternative to the traditional central banking system could actually force policy makers to have accountability. If an equally durable financial space exists opposite of the traditional system, it could force these policy makers to make more sound decisions or risk losing people to the better alternative. So, DeFi ultimately puts pressure on the existing system to make more sound decisions.
Final Thoughts
It should be noted that this article just scratches the surface of this interview. We greatly encourage all our readers to go watch the full interview, which can be found here. Kuo does a fantastic job explaining Ampleforth, the motivation behind creating the protocol, and a look into what the future might look like as Ampleforth is continually developed and its use cases expand. From descriptions of different types of stablecoins to how Ampleforth could be the ideal piece for a complete alternative to traditional banking, the interview was information rich and is a must watch for anyone invested in or simply interested in Ampleforth.