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Gauntlet Network's Ampleforth Protocol Trading Assessment

This post is ported over from a foreword written by Manny Rincon-Cruz and Evan Kuo in reference to G ...


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Modern money is debt and debt is money—Philip Coggan. Few would disagree with this claim. Yes, the vast majority of money circulating today—so-called broad money—represents a specific type of credit-debt relationship.  But the modern economic reality we have internalized, is a breeding-ground of confusion for innovators in the DeFi and wider crypto communities because it combines the roles of government and money implicitly.  This duality, left unexamined, can be misleading for anyone trying to understand the design of independent monetary systems. And it is a mistake to view the modern central-banking framework as a starting point for how to think about monetary blockchain protocols. The case I make here is simply that it is far more sensible to expand the function of commodity-monies in the spirit of Bitcoin than to "decentralize" central-banks in the spirit of MakerDAO. Someone mentioned the philosopher's stone. To the surprise of all present, John Law said he had discovered it. "I can tell you my secret" said the financier. "It is to make gold out of paper." The debt instruments we see circulating as functional money today, are the most effective monies ever created. But the true secret of Law's paper, is that it's produced by banking systems with sovereign authority, and therefore inherits sovereign responsibilities. For example, the US Federal Reserve has the following stated mandates: This means people who are upset with: losing their jobs, rapid price increases, and expensive debt can assign some measure of blame to the agents behind modern-money. Ultimately the central-banking system we know and love is a flexible, discretionary, instrument, through which policymakers can support a body of people, governed by a body of laws.  Think of the central-banking system as a "god-mode" interface built for smart, well-meaning, decision-makers. And think of the Fed mandates as "reminder notes" pinned on the terminal.  We should be grateful this system exists, moreover that it's flexible and powerful enough for administrators to triage the economy though serious shocks—like the one we're currently experiencing.  But my point is, none of the mechanisms made for this almighty administrator, nor its mandates, should be carried over to the design of independent monies without consideration.  An independent money, has no people for whom to maximize employment. Therefore it cannot fear getting carried away with low interest rates, nor can it fear price-inflation incurred in the process of keeping employment rates up.  Perhaps such an independent system should not require a "god-mode" interface at all.  But before we get ahead of ourselves, let's first consider what the mandate of independent money actually is. In 1944 Friedrich Hayek received a letter from a guest of the Claridge Hotel in Atlantic City, New Jersey. It congratulated the Austrian-born economist on his "grand" book, "The Road to Serfdom", which argued that economic planning posed an insidious threat to freedom. "Morally and philosophically, I find myself", the letter said, "in a deeply moved agreement." Hayek's correspondent was John Maynard Keynes, on his way to the Bretton Woods conference in New Hampshire, where he would help plan the post-war economic order. After the end of Bretton Woods, in a paper titled The Denationalization of Money, Friedrich Hayek went on to suggest that governments should allow the private issuance of money—such that individuals can choose to use whichever money they want. Choice would lead to competition, he argued, placing a healthy pressure on central planners. It would force them to be judicious about their issuance of money, thereby preventing things like hyperinflation and prolonged mal-investment from ever occurring.  Having witnessed extreme inflation after World War I in Europe (and notably Germany) where its desolation ushered in the rise of Hitler—Hayek remained vigilant against inflation throughout his career and was keen to highlight it. But that was a different era. And for all the money the US Central Banking system has injected in the past two decades, we haven't seen much price-inflation. The excess money, instead, has turned into increased leveraged speculation. In other words, upon receiving a great sum of money, rather than consuming more—we've tended to invest more.  As the rate of growth in emerging market economies outpaces the growth of the US, foreign economy demand for safe dollar-denominated assets outstrips the growth in supply. This asymmetry between supply and demand, allows the US to rely on easy credit in normal times—and extremely expansionary macroeconomic policies in times of crisis.  Which seems great—being a reserve currency is truly an exorbitant privilege—but it is also an exorbitant burden. The problem is, neither countries in surplus nor those in deficit are incentivized to adjust their behaviors.  We can't stop supplying the global economy with dollars even if it hurts us, and the global economy can't stop demanding them. This conflict of interests is known as Robert Triffin's Dilemma. And it is believed that from this dilemma we've seen excessive US indebtedness and risks magnified to disastrous proportions.  The historically increasing demand for dollar-denominated safe assets has encouraged the US to issue more and more short-run assets, leading to leveraged risk-taking, and magnified boom-bust cycles.  Now alarmingly, the global economy is so interconnected that these business cycles govern all traditional assets, affecting returns on labor and capital alike.  In other words, we have no choice but to be repeatedly dislocated by a cycle that even the authorities "in control" cannot escape. I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter …. But now I want to come back as the bond market. You can intimidate everybody—James Carville Broadly the MakerDAO protocol seeks to decentralize a debt-based system of money, and promises a stable currency—in the spirit of central banking.  Except in this system, policy decisions around fee-rates and collateral composition are made—not at the discretion of a sovereign authority—but at the discretion of a community.  If this sounds great to you, rest assured you're not alone.  But it should be made clear that this approach preys recklessly upon misunderstandings about what makes central banking work and why. Debt has inherent risk because it requires a speculator to accurately anticipate whether a person can pay it back (with justifiable interest)—or it requires a speculator to accurately forecast the future value of a collateral asset. Rather than increasing or decreasing the supply of its monetary token (DAI) in response to demand, the MakerDAO system utilizes a separate marketplace—with its own dynamics—to incentivize users to borrow more or less DAI against the collateral they deposit.  Systems of this nature are flawed when disconnected from sovereign authority in general because such free-market systems operate by choice and incentive. Participants cannot be forced to take on credit or debt for the good of a network. Nor can they be forced to stop taking on credit or debt for the good of a network. They can only be given incentives (like lower or higher interest rates) to directionally guide actions.  A problem arises, eventually, when market incentives become insufficient. We've seen this happen repeatedly in repo and bond markets; and these are some of the safest instruments out there. However sweet a deal the Venezuelan bond market is offering, you may simply not want to receive any future payments in Venezuelan currency; and you cannot be forced to buy the bonds for the good of the country.  Similarly, in the case of MakerDAO, however badly the system needs more DAI to function, you may simply not want to borrow against ETH to supply it; and you cannot be forced to do so for the good of the network.  All open debt-marketplaces eventually face liquidity crunches, requiring bailouts, even ones run by sovereign authorities. So unless the administrators of a debt-based money system can print bailout money, and ensure the new money has predictable value through legal, political, and economic leverage, the system is at the mercy of external lenders.  Think of independent systems like this as "god-mode" interfaces, missing a god. Recall that Hayek's recommendation was for authorities to allow the independent issuance of money. Failing this, an independent system would need to be uncensorable to achieve the desired affect.  Systems prone to requiring bailouts, like MakerDAO, are either unreliable or continue to exist only at the discretion of central planners.  They work, until it matters.  Keeping in mind that we already have an effective centralized system with the necessary authority to bail others out in times of need, it is unclear what purpose there is for things like MakerDAO. They cannot provide customers with meaningfully new choices, let alone keep things like inflation or mal-investment cycles in check.  What about providing access to banking services for the unbanked, you ask? Offering access is much like providing choice. An unbanked user simply goes from having zero banking services to the choice of one or more banking services. In turn, this would place pressure on local governments to offer regulated alternatives of greater value or prepare to cede the infrastructure to external parties.  Similarly, if providing access requires explicit approval, then it is dependent (not independent) and doesn't require decentralized infrastructure at all. Neither a Borrower Nor a Lender Be—Polonius Broadly the Bitcoin protocol expands the function of commodity-monies like gold and silver, by making its system of money digitally transactable. Unlike a bank, however, Bitcoin has no balance sheet and possesses no notion of credit or debt. In other words, the protocol maintains only what users own—not what is owed to them, or what they owe to others. It promises only scarcity and censorship resistance, not stability. And although severe shocks to Bitcoin's demand can decrease the value of its coins, the losses do not break the system. Similarly, rapid appreciation in value does not break the system. As a result, Bitcoin cannot be bailed out, cannot bail others out, and requires virtually no supervision. Like other commodity-monies, Bitcoin does not have a "god-mode" interface. It simply exists, and is difficult to censor or modify. Bitcoin functions as a check against inflation and mal-investment. Moreover its lack of consumptive utility distances it from traditional business cycles. By comparison, commodities like oil can be used to speculate or store value, but are easily distorted by forces like the demand for travel—which is directly affected by the business cycles independent money seeks to escape. At present, Bitcoin is a risky asset relative to the dollar. Thus it would be unwise to retreat into it during times of panic unless other available assets are on even riskier ground.  But this neither invalidates Bitcoin's function as a check against inflation nor invalidates Bitcoin's function as a check against mal-investment cycles.  To understand this, we can simply imagine an economic recovery that is languishing on. Let's say that interest rates are low and consumption is low.  ie: upon receiving a great sum of money, rather than consuming more, we are saving more. Holding dollars would guarantee losses to inflation, but weak consumption is also limiting the rate of return on stocks and commodities.  In this scenario, among others, Bitcoin provides optionality because its growth rate is easy to disconnect from things like output and consumption. It adds diversity to the ecosystem as a risk asset. In the longer run and for wide-reaching issues, more creative solutions tend to come from imaginative interdisciplinary collaboration—Robert J. Shiller Throughout this post I've tried to show that we are truly not starting from scratch. Existing systems, like central-banking, operate effectively in some manners and ineffectively in others for a variety of reasons. When borrowing from existing solutions, we ought to first understand the problems they were meant to solve so that we can avoid the immense cost of inheriting assumptions that simply do not apply. It is straightforward to say that it's neither plausible nor beneficial to recreate the debt-money of sovereign issuers in a decentralized context at this time. However it does make good sense to expand the function of commodity-monies like gold, in the spirit of Bitcoin.  Given that Bitcoin already exists, how might we continue expanding the function of such monies? We would begin by limiting our toolkit to that of scarcity and censorship resistance. We would then investigate how to increase the diversity of monies (not merely the number of monies). And we would seek to overcome the known limitations of fixed supply. If you're curious to learn more about solutions of this nature, please visit ampleforth.org Thanks for tuning in,  Evan Kuo
Updated by
on July 31, 2020, 2:54 a.m.

Take a normative position, make sweeping enemies, only then can you make a difference—I imagined Paul Krugman, dressed as a Jedi, repeating this message. He’s right after all, the world has changed. Ideologically colorblind statements rarely pierce the veil. Yet there are still truths to divine from differentiating between normative and positive economics, even for pundits like Paul. Unlike positive economics, which concerns itself with describing things “as they are”—normative economics is a perspective that concerns itself with value judgements of “what ought to be.” Undoubtedly, both lenses are important. After all, in order to navigate successfully we typically need accurate knowledge of 1) where we are, and 2) where we desire to be. Indeed, this interplay is well-captured in the course of policymaking. My point of departure here, is simply to ask whether we (the crypto community) are somehow imbalanced in our representation of normative-economic proclamations, compared to positive-economic questions. And if so, how might this imbalance be affecting us? We are the Birth of a New Virtual Nation We are a Future for Our World and Humanity We are Sentinels, Universal and Inalienable We are Creativity and Visionary We are Rights and Freedoms We are Tolerant and Accepting We are Polity and Entity We are Privacy and Security We are Openness and Transparency We are a Dream and a Reality We are Bitnation This poetic ending to the Pangea whitepaper by Bitnation, carries with it normative opinions about a world that “ought to be.” In the paper, its authors describe a future in which individuals can establish borderless “nations,” suggesting that nation-states will “become increasingly irrelevant to our everyday lives,” thereby liberating humankind from “the xenophobia and violence that is nurtured by the Nation State.” I encountered this project through my friend Ramesh Srinivasan, a professor at UCLA who explores technology’s relationship to economic, political, and cultural life. In his latest book, Ramesh draws upon the example of Bitnation to introduce the observation that blockchain projects appear to pervasively root themselves in pre-existing ideological convictions. And then goes on to discuss some of the pitfalls associated with this tendency: “Ideology itself is not inherently a bad thing, but when it drives the development of a technology, the result may look good from some angles and half-baked from others. Bitnation’s shortcomings in this regard are part of a wider trend in which people project their fantasies onto blockchain technology.” By contrast, this abstract from the Ampleforth whitepaper (of which I’m an author) is far less poetic — but serves as a straightforward example of what we mean by a positive economic thesis. Synthetic commodities, such as Bitcoin, have thus far demonstrated low correlation with stocks, currencies, and precious metals. However, today’s synthetics are also highly correlated with each other and with Bitcoin. The natural question to ask is: can a synthetic commodity have low correlation with both Bitcoin and traditional asset groups? In this paper, we 1) introduce Ampleforth: a new synthetic commodity and 2) suggest that the Ampleforth protocol, detailed below, will produce a step-function-like volatility fingerprint that is distinct from existing synthetics. The paper simply: Whenever I tell people that I work in the cryptocurrency space, and they start rolling their eyes, I show them the abstract to the Ampleforth paper. Like clockwork, the reactions I get afterwards are almost always of surprise, delight, and notably relief. This “turnaround” happens quickly—even in loud, crowded, environments. It is as if people suddenly go from thinking crypto is full of delusional extremists, to thinking that we’re scientists, engineers, or otherwise “sane” people. Occasionally, they even think I’m onto something. This table, tracking the evolution of Bitcoin’s narrative over time, shows the asset trending towards an increasingly positive economic thesis. Prior to 2017, we saw narratives attaching themselves to the notion of “replacing” sovereign solutions. The implication being that something is catastrophically broken with existing systems of government, and Bitcoin is the solution. Yet after 2017, we see narratives distancing themselves from concepts of government altogether. Eventually, coalescing into an “uncorrelated asset” thesis which embodies the positive economic description of what Bitcoin is today, without diminishing its potential for global-impact or price appreciation. But why the directional change? Doesn’t the angriest person always win on the internet? Have we not fully transitioned into a post-truth era? Perhaps it’s because a great many people now, want to partake in the upside of Bitcoin as an investment asset, but are unwilling to identify with extremist ideologies. After all, normative economic perspectives are seldom agreeable. Or perhaps the litany of false promises left behind by 2017 evangelists has fatigued the world, irrevocably upping the standard of what the public requires as an explanation for why Bitcoin is a good investment. Natural selection? Whatever the case, I’m reminded of this tweet by Peter Schiff in which he gloats about Bitcoin’s price dropping near the end of 2019. My sense is — there’s something interesting going on — when one of crypto’s most vocal antagonists is caught actively reinforcing a narrative that supports Bitcoin, even as he wishes a swift death upon it. Perhaps that’s the power of positive economics. Thanks for tuning in — see you space cowboys + girls,
Updated by
on April 22, 2020, 10:55 p.m.

I was looking at this table comparing PC, web, and blockchain platforms the other day and couldn’t help but think, DeFi needs better primitives—that is to say, DeFi needs better base-monies. This familiar table presents today’s blockchain development stack alongside the PC and web application stacks of yesteryear, painting the compelling picture of limitless possibilities. Encoded within it, the promise of a new and decentralized finance infrastructure—beyond the reach of politics. Just as HTTP and FTP were the primitive building blocks of the web, today’s decentralized assets, BTC and ETH, are the primitive building blocks of the new DeFi economy. These assets can be arranged to construct instruments for lending, debt, synthetic equities, and more. But today their limitations lie in their volatility and high correlation to one another—hence the requirement for extreme over-collateralization and looming risk of auto-liquidation. Often when I mention this to others operating in decentralized finance, they ask: “What about DAI, isn’t that a stable and decentralized primitive?” “Not quite,” I respond, “DAI is derived from other primitives like ETH.” In Economics, there are: theories of banking, theories of money, combined theories of banking and money—but banks and monies are never mistaken as interchangeable without consideration. Banks have balance-sheets, and at some level of depth, they hold in reserve a type of collateral that lives outside the realm of credit and debt, called base-monies (what we’ve been calling primitives). Base-monies don’t have balance-sheets, they are not collateralized, they are atomic units within a given sector—and the quest for the ideal base money, has long preoccupied monetary economists. Today, decentralized banks like MakerDAO compensate for the high volatility inherent in decentralized base-monies by over-collateralizing, often locking up several times the amount they aim to represent. Even still, risks of auto-liquidation loom ever-present. One promising attempt to break free of this problem, was the introduction of Multi-Collateral-Dai (MCD). The thought being that: perhaps by leveraging a portfolio of collateral assets, their combined volatility could be reduced. Unfortunately, the myriad new cryptocurrencies that followed BTC and ETH, have not helped. Instead, today’s floating-price cryptocurrencies mimic their movement pattern with supernatural closeness. With such hypercorrelations, the risk cannot be diversified away. At present, the MakerDAO project faces increased pressures to introduce centralized collateral assets like Digix Gold. But in a more ideal world, the set of decentralized base-monies would be less correlated, or more stable—this would allow decentralized banks to avoid introducing centralized points of failure. Said differently, uncorrelated defi primitives (base-monies) are the next line of defense against DeFi becoming, just Fi. Still, there’s more to consider than hypercorrelation—and more to learn from the history of base-monies. Not long ago the dollar was redeemable by foreign governments for the base-money, gold, under Bretton Woods. Thriving as the global reserve currency after World War II, demand for US dollars exceeded the rate at which the state could obtain enough gold necessary to continue backing it. Naturally, this imbalance in supply and demand caused the price of gold to soar, further restricting it from circulation in a self-reinforcing cycle. Then, as it is now, the global economy depended on US dollars to function—and the currency was at serious risk of entering a deflationary spiral. The state needed the flexibility to increase its money-supply countercyclically. That is to say—in order to stimulate the circulation of money—the money-supply would need to move against the blind-forces of nature. And since gold was neither sufficiently countercyclical nor elastic, in 1971 US president Richard Nixon was forced to cancel the dollar’s redeemability into gold altogether. Thereafter the money-supply, and thus the value of the dollar, would be determined entirely at the discretion of human policymakers. Bretton Woods Tip #1: The supply elasticity of base-monies matters, particularly when they are part of a broader feedback loop in support of a functioning economy. Bretton Woods Tip #2: Countercyclical economic policies are executed in response to economic shocks to stimulate liquidity, when market forces would otherwise encourage users to hold. Flawed as it was, the Bretton Woods standard enforced a simple set of rules: either the state had enough gold to back the money-supply, or it didn’t—and the world would simply have to deal with it. This straightforward constraint had the benefit of eliminating all possibility of runaway inflation, preventing political tampering, and forcing judicious long-term considerations, around the certainty of said constraint. Eventually this dichotomy between absolute rules and human discretion would captivate the minds of monetary-economists Kydland and Prescott — well into the era of pure fiat monies. The two economists redefined this problem, as the distinction between time-consistent (rules-based) and time-inconsistent (discretion-based) economic policies—and they would eventually share the 2004 Nobel Memorial Prize in Economics for their discovery. Kydland and Prescott, concluded that economic policies made at the discretion of people, however aligned in social objectives, would never result in the objectives being maximized—because discretionary economic planning is not a game played against nature, it’s a game played against profit-maximizing economic agents. The agents’ knowledge of fallible humans behind the curtain, would inevitably distort incentives to encourage the abuse of any discretionary system, forcing undesirable tradeoffs between near-term individual gain and long-term collective well-being. Their discovery left many in the world of Economics missing the simpler days of immutable commodity-reserve-currencies, free from human governance—but with the memory of Bretton Woods still fresh, vividly aware of their costs. Kydland-Prescott Tip: Human discretion (or governance) be it individual or collective, results in suboptimal outcomes, so long as economic actors understand the system can be changed by the individuals in charge. Ultimately, if Nixon had replaced gold with BTC or ETH at the end of Bretton Woods, we wouldn’t have been any better off. But could a new and different base-money now be designed to fit the bill? We certainly think so, and it is with this great macroeconomic puzzle in mind, that we created a new defi primitive: the AMPL. At a high level, decentralized banks like MakerDAO can be viewed as directionally reducing the role of centralized banks. We felt—along similar lines—it was time to gently expand the role of base-monies. In Economic vernacular: the AMPL is a countercyclical synthetic commodity-money, with perfect supply elasticity. It is also an ERC20 token and series of smart contracts—that accepts 24hr volume-weighted-average price-information from oracles—and proportionally increases or decreases the quantity of AMPL’s held in every user’s wallet. The Ampleforth protocol adjusts supply by updating a global scalar coefficient of expansion, in response to deviations from a price-target, once everyday. The AMPL does not have a balance-sheet, it does not retake custody of tokens or airdrop new tokens to adjust supply—and no, it’s not a stablecoin—at least not by the use-cases assigned to the role of stablecoins today. It is a new decentralized base-money. But it does have another unique property. Due to the fact that gains and losses for AMPL holders are reflected in both the quantity of units held—and the price per unit—the Ampleforth protocol introduces a fundamentally different set of incentives. As a result, profit-maximizing actors responding to these unique incentives, produce a step-function-like movement pattern that is expected to be meaningfully less correlated with today’s decentralized assets. Our intent is to fill the near-term void of an uncorrelated primitive and grow into filling the long-term void, of a macro-economically friendly base-money. Thanks for taking the time to hear our thoughts, would love to hear yours!
Updated by
on April 23, 2020, 8:39 p.m.

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When I try to deposit to the MOON-V1-BZRX-AMPL pool I get: Error executing deposit: Transaction error In the console: Error: invalid number value any idea what's going on here? Is there a place to post techincal discussions.
Updated by
on Sept. 21, 2020, 3:14 p.m.

Hi :) Currently the Geyser Enceladus supports a bunch of different token pairs, eg. AMPL/COMP, AMPL/MKR, AMPL/LINK. Can we expect/Do we know if the supported pairs will stay the same in the new rounds, independent of the selected DEX? Otherwise one has to swap the not-anymore-supported tokens to the-new-supported tokens to still be eligible for geyser (assuming one has no other tokens). In the worst case one has to do it every new round, which would sum up to quite some gas price loss and losing the position of each not-anymore-supported token. Thank you very much!
Updated by
on Sept. 21, 2020, 2:38 p.m.

What tools to you use to track liquidity pool change and DeFi token prices? Something we have not seen previously on the market is this telegram bot tool https://t.me/EtherDROPS_bot Basically, with the help of this bot you can receive instant notifications on liquidity pool change of any DeFi (only Ethereum based though). Additionally, you can monitor the price of DeFi tokens. Quite helpul because you can stay alert 24/7 and make accurate and weighted investment decisions based on it. If you the value of a liquidity pool drastically fall or increase- time to think about it! Just as an example, we have attached a screenshot of these notifications. As a nice addition, you can track any Ethereum based wallet, whether it belongs to a whale or simply your own one! Tell us what you think? What do you use to monitor liquidity pools and prices?
Updated by
on Sept. 21, 2020, 10:17 a.m.