Market Data 
Ampleforth (AMPL), the rebasing cryptocurrency whose ecosystem also includes SPOT, an experimental flatcoin, has surged in value by more than 1,200% over the past seven months.
With a market cap of $304m today – up from $22m in September 2023 – AMPL has been one of the best performers in the digital assets marketplace this year, outpacing even Solana’s mighty rise. Yet it remains a relative unknown in the cryptosphere, barely breaking into the top 250 tokens by market cap and trading on just a handful of exchanges. Even the backing and investment of Brian Armstrong, Coinbase’s CEO, hasn’t propelled it to the mainstream.
Enthusiasts blame this obscurity on confusion about AMPL’s rebasing mechanism, which automatically changes the number of tokens held in each wallet overnight. That mechanism serves an important purpose: by shifting volatility from price to supply, it lays the foundations for AMPL to function as a ‘unit of account’, or an inflation-adjusted token that consistently tracks real purchasing power over time. It’s because of these supply rebasements that 100AMPL will always revert back to the value of the same basket of goods. The trouble is, that doesn’t make the token itself a ‘store of value’: as soon as you buy 100AMPL, your wallet balance can fall and you can lose money. The volatility is repackaged – not removed.
After an initially warm reception in 2019, the pain of negative rebasements (falling wallet balances) started to annoy holders and AMPL quickly fell from grace. This was partly down to unit bias: across all asset classes, investors are much more familiar with – and so, more resilient to – falling prices than they are to shrinking supply. In fairness, though, it was also because AMPL’s big plan didn’t really amount to much. Without functioning as a ‘store of value’, there wasn’t any point to the token from the user’s perspective.
So why is AMPL suddenly back in the spotlight? The main reason, fittingly, is SPOT, a new flatcoin (not technically a stablecoin) that’s built on top of AMPL and aims to become its affiliated ‘store of value’. In essence, SPOT aspires to be both inflation-resistant and supply-stable, despite lacking any real-world collateral. That’s an incredibly bold ambition: success will essentially mean the creation of the world’s first stable, digitally native, decentralized currency – a new form of cash separate from the fiat banking system, yet somehow mirroring and capturing its value.
Whether SPOT can attain this lofty goal is anyone’s guess, and as always readers should tread carefully when risking their money on cryptocurrencies – especially smaller, more volatile ones. For those who are curious, though, I hope my explainer sheds some light on this ambitious, complex and little-understood protocol.
AMPL’s price has barely changed in seven months. How can you say it’s up 1,280%?
Everyone who held AMPL over the past seven months has seen their holdings rise in value by more than 1,200%. But, unlike with most assets, you can’t measure that profit solely by looking at price. You also need to look at the changing number of tokens (the supply) in your wallet.
Let’s break it down really simply: for most assets, when the value of an investment rises you measure your profit by checking how much its price has increased. Say, for example, you buy 100 COIN tokens for $1 each: if the price of one COIN token increases by 1,200%, then each of your tokens is now worth $13. And your total investment of $100 is now worth $1,300.
Now let’s say you buy 100 AMPL tokens for $1 each. And let’s assume that the same market forces driving demand for COIN are also driving demand for AMPL. In the short-term, over the course of each day, this rising demand will push the price of AMPL higher. As long as the token’s average daily price stays within 5% of a pre-determined target (so, for a $1 target, as long as price doesn’t exceed $1.05) nothing else happens. But when the buying pressure is so high that AMPL’s price exceeds that target, then all wallets on the blockchain have their balances proportionally expanded. This will encourage selling, as existing holders will effectively have been airdropped free tokens. And, in turn, that selling pressure will push price back down to target. (Conversely, an under-target price triggers supply contraction and knock-on buying.)
Eventually, after months of positive rebasements, price may have reverted back to its $1 target, with demand and supply back in equilibrium. By this stage, though, you may now have 1,300 AMPL tokens in your wallet – meaning, again, your total investment of $100 is now worth $1,300.
For both tokens, your profit is calculated by first multiplying your supply by the market price, and then deducting your costs. The only difference is that COIN profit manifests as a higher price, whereas AMPL profit manifests as a higher supply. Put another way, we always have to factor in supply changes when calculating profit; most of us just don’t think about it that way, because our supply almost never changes.
How does AMPL calculate its price target?
AMPL’s price target is the present-day purchasing power of one 2019 US dollar, as measured against the US Consumer Price Index (CPI). Thanks to inflation, that five-year-old dollar is currently worth $1.18 in today’s money. Hence, for the time being, AMPL’s price target is $1.18. This is a moving target that will keep increasing as long as inflation keeps eating away at the dollar’s value. If the dollar enters a deflationary spiral, then the price target will start decreasing. In all scenarios, the price target represents an objective yardstick for real purchasing power – a ‘unit of account’ that is neither inflationary nor deflationary.
If shifting volatility from price to supply creates an inflation-resistant ‘unit of account’, why doesn’t the Federal Reserve do that?
Actually the Fed does do that. But with two important caveats: first, the US government doesn’t want its currency to be a perfect ‘unit of account’ that represents true purchasing power indefinitely. Like most governments, it wants its currency to be slightly inflationary, because citizens will generally spend more and economic activity will generally grow when there’s a direct cost associated with holding cash. That’s why the Fed has set an official target of 2% inflation per year (which is also calculated against CPI data).
The second caveat is feasibility. The Fed can – and, indeed, regularly does – change the money supply when it sees a good reason for doing so. But it can’t make these changes very fairly or efficiently.
Let’s consider this simplified scenario: if the size of the US economy grows by 1% overnight, then the value of each dollar swishing around in that economy has also risen by 1% in real terms. Value has been created, and each monetary unit represents a fixed fraction of that value. Now, the Fed won’t like that very much, because when cash appreciates in value then people save more and defer spending. The obvious solution, then, is to raise the money supply by 1% as well, bringing the supply of dollars back into equilibrium with the new, higher demand for dollars. And the Fed does this by turning on its money printers. The trouble is, that new money has to be distributed somehow.
With AMPL, thanks to its innovative use of blockchain technology, new supply magically appears in everyone’s wallet overnight. New tokens are distributed proportionally to all holders, so no-one’s relative stake in the protocol (or, if you like, in the Ampleforth economy) is diluted.
Not so when the Fed prints money. Whatever mechanism it uses – whether physically printing notes or buying government bonds or anything else – new dollars are injected into the economy through banking channels. Those banks then get to spend that money before the impact of higher supply ripples through the economy and devalues each dollar. This is known as the Cantillon Effect or ‘relative inflation’: the entities closest to the change in money supply (the banks, and after them the corporations) enjoy first-mover advantage, while those at the end of the food chain (the consumers) foot the bill. Ordinary people only see abstract, trickle-down benefits through things like job creation and average wage increases. Yet they pay a direct, tangible cost through the dilution of their savings.
If America were to become a cashless economy that’s wholly reliant on a Central Bank Digital Currency (CBDC), then it would be possible for the Fed to mirror AMPL’s supply-elastic, non-dilutive approach. Short of that, there will always be a pecking order. Not all dollars are created equal, and there’s no way for the Fed to proportionally expand savings that have been stashed under mattresses.
If AMPL doesn’t function as a ‘store of value’, why would anyone believe SPOT will?
‘Believe’ is the key word. From as long ago as 1200 BC until as recently as the 19th century, the shells of cowries, a type of sea snail, were widely used as legal tender and a ‘store of value’. Countless societies around the world – stretching through epochs – saw these attractive, portable, scarce shells as a valid form of money. People believed they were money, and so they functioned as money.
Nowadays, many of us still have a cowrie in our living rooms. They’re nice ornaments to display and admire. Not many of us see them as money, though. People no longer believe they are money, and so they no longer function as money.
The same will apply to SPOT (and any other contender for the title of a native digital currency). At present, a minuscule number of people believe that SPOT has what it takes to become a valid form of money. They base this belief on what they see as the robustness of SPOT’s design: the token is minted by first splitting AMPL into tranches and then collateralizing only the safest 33% tranche. This dampens its volatility. After that, SPOT’s collateral has one of two fates: either it’s re-collateralized by fresh AMPL every 28 days (in which case it’s shielded from AMPL’s supply volatility, and it functions as a ‘store of value’ by tracking AMPL’s price target); or it’s not re-collateralized (in which case it’s exposed to AMPL’s supply volatility, and it risks failing as a ‘store of value’ by de-pegging from AMPL’s price target). To understand the mechanism in more detail, check out this article I wrote for Forbes in 2022.
SPOT, a derivative of AMPL, will succeed as a ‘store of value’ if enough people believe it is one. In the absence of that widespread societal belief, it will fail. AMPL meanwhile, was never designed to be a ‘store of value’. It was designed to be a ‘unit of account’, and it does not require public faith to fulfill that function.
So believing in SPOT is like believing in Terra LUNA UST: it’ll work until it implodes?
No, because UST had a different mechanism – a hard peg – which sought to impose societal belief in the value of its stablecoin. Terra’s founders declared to the world that UST will always be worth $1. They did not seek the approval of the general public in setting that valuation, and they did not accommodate any outcomes beyond absolute success or absolute failure.
Let’s remind ourselves how UST was designed: the stablecoin was collateralized with LUNA, another cryptocurrency in the Terra ecosystem. It was not backed by any real-world collateral. Terra’s founders claimed to have developed a complex algorithm that would indefinitely preserve UST’s peg by burning or minting LUNA in response to market demand. This mechanism worked for a while. Then, during a period of intense market volatility, LUNA was algorithmically hyperinflated and UST became worthless.
As always, society – or a subset of society: the digital assets marketplace – had the final say about any claim of being a ‘store of value’.
Now returning to the Ampleforth ecosystem: it’s true that SPOT also lacks any real-world collateral. SPOT is wholly backed by AMPL, and AMPL could one day lose all of its value. But there are three key differences between how SPOT and UST are designed. First, SPOT is a ‘flatcoin’ (not a stablecoin) with a free-floating exchange rate (not a hard peg) that targets a given price but doesn’t claim to rigidly hold it. Second, SPOT provides society with a voluntary mechanism (collateral rotation) for preserving that price, if it so chooses. Third, if society declines the invitation and rejects SPOT as a ‘store of value’, the token can still be redeemed for the residual value of its collateral at all times; collateral that’s transparently priced, and whose valuation is not vulnerable to algorithmic hyperinflation.
SPOT, unlike UST, is designed to accommodate losing value. That’s just as well: any other design for money is hubris. And it’s the nature of this unraveling that really matters: SPOT’s price is allowed to bend as the value of its collateral changes. If that collateral enters a transient or terminal decline, holders of SPOT are allowed to redeem their proportional stake in the shared collateral set at market value. As long as the entire market cap of AMPL doesn’t crash to zero overnight, that guarantees a more orderly and graceful unwinding of value than holders of UST were afforded.
Ultimately, the idea behind SPOT – the establishment of a stable, digitally native, decentralized currency – may one day prove to be a folly. But the mechanism itself can never implode, because it’s not designed to do anything more than empower society to embrace or reject that idea.
How has SPOT performed to date?
Pretty well, which is probably why people are beginning to pay attention. The token has closely oscillated around its price target since launching in late 2022, rarely deviating by more than 5%. One notable exception was last month, when surging demand for AMPL propelled SPOT above $1.50. Like any free-floating asset, SPOT is vulnerable to short-term price shocks. But the flatcoin has largely avoided the wild swings associated with AMPL, and its price has now fallen back to target. Whether that success continues during periods of greater market volatility and prolonged AMPL supply contraction remains to be seen.
Financial disclosure: the author is a long-term holder of Ampleforth ecosystem tokens. He will not buy or sell any such tokens (AMPL, FORTH, WAMPL & SPOT) in the 90 days following the publication of this article.
