With yield farming tokens, Defi tokens, and apparently viral Tik Tok tokens (Doge) dominating alt flows, crypto twitter has likened the contemporary climate to that of the early days of 2017 ICO bubble. Ampleforth, or Ample (AMPL), is a notable project that recently introduced a yield farming incentive, which has also been on an absolute tear. AMPL as of writing sits at $2.41, but if you are familiar with AMPL’s design you would know that this paints only half the picture. When AMPL trades above its price target threshold, AMPL expands its supply based on the volume-weighted average price deviation from the price threshold. So, one has to note both price appreciation and supply expansion…which is the market cap. AMPL has a market cap of ~$91 million equating to > 400% (!) increase from last month’s market cap of ~ $17.7 million.
For a more nuanced explanation of AMPL’s rebalancing mechanics, please refer to our thematic piece on elastic supply protocols. In short, when AMPL trades above or below an expansion and contraction threshold, the Ampleforth protocol can trigger a rebase function. This function expands or contracts AMPL supply; for example, 1 AMPL could now be worth 1.1 or 0.9 AMPL post rebase.
Since June 23rd, AMPL has traded above its price threshold of $1.06 and never looked back. Why is this so? While one can not pinpoint the exact motivation of traders, a clear catalyst here has been a) the liquidity mining incentive scheme (Geyser) as the activation energy necessary to push and sustain bullish sentiment, and b) Ampleforth’s reflexive design that disincentives selling (and buying) during times of high momentum.
Let’s talk A.
On June 23rd, the Ampleforth liquidity mining incentive program called Geyser went live. With Geyser, one can stake Uniswap AMPL-WETH LP Pool Tokens in a staking contract to capture AMPL yield. Ampleforth is set to distribute 25,000 AMPL each month to LPs based on a time-weighted stake. The current maximum APY is 34.59%, not factoring in Impermanent Loss. To disincentivize LP token withdrawing, there is a reward multiplier that increases as the time of stake increases.
An example of the Geyser unlocked pool ownership calculation is below.
The fact that Ampleforth is 1) incentivizing LP provisioning, and 2) long-term LP provisioning, results in less AMPL float used for stabilization. AMPL holders are incentivized to stake rather than sell/buy in times of network expansion/contraction. On top of that, Ampleforth has also implemented an 866 ETH insurance program through Nexus Mutual on the Geyser staking contract – this could also meaningfully sway more risk-averse LPs to stake. AMPL’s price rally directly coincided with Geyser going live.
What is interesting to note, however, is in times of AMPL expansion, one’s APY (and return) solely due to AMPL rebases can be much higher than the APY when providing liquidity in Geyser. This is due to the fact that Impermanent Loss hits doubly as hard for AMPL. As AMPL price runs up, Uniswap rebalances your holdings to less AMPL and more WETH, and thus you capture less rebase inflation on lower AMPL holdings. This compounds as AMPL price continues to move up relative to ETH. Expansionary rebases also inherently changes the AMPL:WETH weights, and as a result, the rebase of AMPL in Uniswap Pools is arbed directly into WETH. So one receives less rebase on holdings and also receives less rebase as their AMPL rebalances into WETH. Another issue is that rebases at high AMPL values ($2) are worth more than rebases at lower AMPL values ($1.2), and such, LP impermanent loss is exacerbated in these market conditions. If prices sustain, I wouldn’t be surprised to see a reduction in Uniswap liquidity.
With that being said, even though yield farming provided lower returns than simply holding AMPL, it certainly helped catalyze the recent price run-up, as well as, disincentive holders to sell.
Now onto B.
In times of price deviations from the threshold, one’s balance both changes on a price and supply basis. This change is directly related to the extent of the price deviation. AMPL at $2 will inflate one’s balance more than AMPL at $1.5. So, as long as buy-side liquidity increases, AMPL will both pump a holder’s AMPL price and supply. The higher the price, the higher one’s balance multiplies. One’s balance will only start decreasing once the daily VWAP of AMPL hits below the contraction threshold of $0.96. The pumpamentals are right there.
To realistically keep AMPL stable at a dollar, you need traders (market makers) capturing profits from price deviations. With that said, you would need sizeable holdings to fight strong momentum, and even then, it would be more profitable to trade with the trend. With the price running up, it is now a game of chicken between large holders to see who sells first and time the top. If an AMPL whale sells at $2.5 and knocks the price down to $2, every day the whale sits out of the market as AMPL trades above $2 he/she is loosing out on a % ownership of the market cap basis. This could be weeks to months, as seen by the ~3.5 month period of AMPL trading below its price threshold (see graph below). Timing market tops and bottoms are incredibly difficult.
With the current bullish rally (just take a look at the state of Ampleforth’s Telegram) carrying AMPL price up, investors should be aware that the reflexive design has a similar dynamic during bearish conditions. Therefore, as of now, with the retail trading base and unwilling/non-existent set of market makers acting as ‘stabilizers’ to the system, AMPL is prone to cyclical boom and bust cycles. This is not a bad thing, as there is money to be made, but investors should be aware of the dynamics at play.