Trying to understand the concept: what am I missing?

Now I'm not too sure either, kind of new too, but I think I have a bit of input here.

So the supply shifts in order to maintain the peg, right? For this reason, I don't really like looking at AMPL from the perspective of it being an investment.

Instead, look at it's use case in the future (notably with Eth 2.0 in a few years):

Bill is a wonderful forward-thinking artist, and he wants to sell his art (maybe as NFT's who knows?) on the blockchain.

He also wants to have some security that the price he's getting stays the same in USD, so he can sustain himself reliably.

Bill has a few choices: Transact in a stablecoin like DAI (backed by overcollateralized ETH) or USDC (backed by actual USD held in centralized banking institutions) Both of these would work, except there are issues associated with either. DAI, for instance, has to originally be minted by locking up ETH (and maybe other collateral now, not sure), so it's essentially being loaned, whereas USDC is at the whim of the banks (and we all know they're not great).

Here's where I think AMPL can make a difference- By having a varying, algorithmically adjusted supply, AMPL (will be) able to maintain the peg without those previous issues.

So, back to Bill! He decides he wants to sell his art denominated in AMPL, because he's confident that AMPL will always remain at a stable peg, because it's hardcoded in how the system operates.

To Bill, it's a more secure, stable way to transact. (I BELIEVE)

Now, of course, AMPL isn't at 1$ right now, because of the recent huge gain in interest, and due to how the system operates rebases can't be this extreme, it'll take time for the system to cool off and balance itself out! The goal here eventually is to have 100$ in AMPL stay as 100 AMPL. So if AMPL is worth 2$, the AMPL you have ought to increase twofold, to maintain the peg and halve the price.

I do think there is more risk/reward involved with holding AMPL, and I'm not too clear on it's future useability because of that. Here's what I mean: If you buy $100 of AMPL at $1/AMPL, should the price be reduced to $0.50, you'll be left with just 50 AMPL to maintain the peg at $1. I think this is solved by pure market forces which will eventually act to maintain it within the soft peg's range. The risk, compared to DAI for instance, is that you're reliant on the market cap since your ownership of the network is kept in proportion.

Not too sure how we'll reach adoption like DAI or USDC with the normal blockchain crowd but I believe the adjusting supply concept is solid!

Also, I'm not sure if I helped answer your question at all hahaha! Either way, I hope you got a little bit of value from my response. Definitely doing more research!

EDIT: This might be useful: https://www.ampleforth.org/economics/

EDIT 2: We do have to keep in mind that the rebasing algorithm does impact the volatility pattern, too! More about this in the whitepaper, wayyy beyond me: https://drive.google.com/file/d/1I-NmSnQ6E7wY1nyouuf-GuDdJWNCnJWl/edit

Thanks to Zer0dot for sharing some thoughts on the matter. They definitely helped guide my thinking.

I agree with much of what you're saying. Though I still think that Ampleforth is a clear example of an investment opportunity (as opposed to a safe-haven asset) for the same reasons as other crypto-currencies. Sure, the protocol is developed to aim at a 1$ peg, but that reduction in price-volatility is just moved to the supply instead. One of the key selling points of AMPL is that it is not correlated with bitcoin etc., but I would argue that while this is true for PRICE the correlation would still be similar if made with e.g. the price of bitcoin and the MARKETCAP of AMPL, which is the real measure of the evolution of an investment in AMPL. So I'm not sure I buy into the reasoning behind AMPL being a supposedly less correlated asset. Sure, in the short-term, but not the longterm.

But your story about Bill made me think and maybe made me realise something I hadn't thought of before. Namely that while an investor like me may still be able to earn money by investing in AMPL (hoping for an increase in suply over time, rather than price) AMPL simultaneously allows an every-day user, earning and using AMPL in his day-to-day affairs, to benefit from the stability of the peg (though obviously not benefit from any price/supply fluctuations to the same degree as an investor because his "position" is smaller and constantly changing).

In essence, I think the crux of the concept then, is that it is the best of both worlds: A great investment opportunity AND a great day-to-day currency. In addition I think it might encourage actual day-to-day use more-so than most other cryptos because if I buy e.g. ethereum I am constantly thinking about its value and am reluctant to use it for anything, whereas with AMPL I am still able to invest but when holding it, it FEELS a lot more like regular money simply because it's value is always relatable to all the other stuff I buy throughout my daily life.

From an investment perspective, I agree that an AMPL position does come with a lot more short-term risk/reward though. If you buy 100 AMPL at 1$ and the price increases to 2$ the supply doubles and your position is now 200 AMPL. However the price itself doesn't change, which means that while you would make a 2x on a regular asset you have now made a 4x (which is also why this forms an incentive for people to sell and thereby eventually rebalance the price). And the same is ofcourse true for the downside. I.e.: a price reduction to 0.5$ would reduce your position to 50 AMPL at .5$ each, or a 4x reduction in your original position relative to a 2x reduction in a regular asset. Though the market for rebasement trading is likely just going to be automated by trading bots eventually because of how (necessarily) predictable it is and so this doubling of risk/reward will eventually likely be less relevant (i.e.: in practical terms it will eventually drop to +/- 2x in the above examples for most human traders :D ).

And yes, I will definitely keep digging into this subject. Having positioned myself in AMPL and supplied liquidity through the geyser, I want to make sure that I fully comprehend the concept and perspective.

If anyone else has any input it is more than welcome! Educate us poor noobs :)

Glad I could help!

I've been doing more research, and a legitimate use-case has to be developed to convince me, but it's definitely an interesting concept!

Also, do keep in mind that market forces act preemptively, meaning price should hypothetically adjust itself alongside the daily rebase. At least, that's what I think.

So the situation where you have 1 AMPL at 1$, the price doubles and you have 2 AMPL at 2$ is perhaps more nuanced. I believe the fast trader-slow trader dynamic will turn predictive as available liquidity grows and common knowledge of the rebasing system becomes more widespread. (Edit: In other words, market forces may end up acting in favor of maintaining the peg before the rebase occurs in the long run.)

So, let's remember that whether you have 1 AMPL or 10 AMPL, your money is wholly dependent on the market cap, as you said. Whether or not this causes a correlation to BTC and other currencies in the long run is actually a good question, my gut tells me "yes," but what does my gut know lol?

(Just a side note- one dangerous thought I've seen going around is that the the rebase is compounding interest. Whether you have 1 AMPL at 10$ or 10 AMPL at 1$, the compounding effect nets you the same! The rebase is NOT a magic money maker, as much as I wish it was!)

Anyway, back on topic, we'll have to see! It really depends on where AMPL finds it's equilibrium and whether or not the rebase system has a genuine impact on market dynamics. Perhaps the dollar value of your holdings would indeed be correlated to BTC, I'm not knowledgeable enough to know!

But one thing's for sure- it's damn interesting to think about!

Ah ofcourse. I hadn't thought about how bot trading will eventually become pre-emptive. As you say, this will probably lead to a more nuanced (or "fluid") shift around the rebasement. Its interesting to try to imagine how this protocol might work with much more capital.

Thanks for your thoughts!

Cheers

(Just a side note- one dangerous thought I've seen going around is that the the rebase is compounding interest. Whether you have 1 AMPL at 10$ or 10 AMPL at 1$, the compounding effect nets you the same! The rebase is NOT a magic money maker, as much as I wish it was!)

That's an interesting point. I think this may stem from the fact that we're so used to thinking of our money (and the supply) as fixed. Obviously there's always inflation but we don't think about such matters in our day-to-day use of cash. I think some of this misunderstanding could be alleviated if wallets automatically showed both your AMPL and your percentage of the full supply. I.e.: the current supply is 425.36 million AMPL. If I buy 1000 AMPL I then own (1000/425.36e6)x100=2.351e-4% or "235.1 uPS" (micro-percentage of supply). That way my wallet balance might change over time like:
1000 AMPL (235.1 uPS)
1215 AMPL (235.1 uPS)
1492 AMPL (235.1 uPS)
1143 AMPL (235.1 uPS)
...etc
and I would have a much more intuitive way of understanding the concept of my position :)