The rise of the DeFi movement has marked a significant shift in the dominance of payment instruments within the crypto market. Previously, centralized stablecoins like USDT and USDC held the majority of the market share. Overcollateralized stablecoins, such as DAI, and elastic currencies like Ampleforth (AMPL), were often seen as niche experimental products.
However, as the DeFi ecosystem expanded, these alternatives gained substantial traction. Over the past year, the supply of DAI increased by over 18 times, making it the largest decentralized stablecoin by market capitalization. Meanwhile, AMPL’s supply surged by more than 30 times, with its holder addresses exceeding 100,000.
Elastic currencies became a major focus following the “yield farming” trend. Although many projects in this space eventually failed, their underlying mechanisms sparked widespread discussion and experimentation, contributing valuable insights into monetary innovation.
Ampleforth, as one of the pioneers in elastic finance, has evolved from its initial volatile phase into a more stable and integral component of the DeFi ecosystem. It is now used as a pricing unit in various protocols, including Aave. In April 2021, Ampleforth launched its governance token, FORTH, transferring control from the founding team to the community and achieving full decentralization. More recently, the project introduced Geyser v2, a redesigned liquidity mining program that improves capital efficiency through universal vaults.
Looking ahead, the Ampleforth team anticipates that AMPL will continue to power an expanding range of DeFi applications and serve multiple blockchain ecosystems.
Understanding the Need for a Native Crypto Accounting Unit
Over the past 18 months, the stablecoin market has experienced exponential growth. The total market capitalization of stablecoins surged from $5.9 billion in January 2020 to over $100 billion, an increase of nearly 2000%.
While these numbers highlight the potential of crypto markets, they also reveal critical vulnerabilities. The dominance of fiat-backed stablecoins introduces systemic risks that could threaten the entire crypto financial system.
The top three stablecoins—USDT, USDC, and BUSD—are all fiat-collateralized and maintain a 1:1 peg to the US dollar. Although widely used and perceived as stable, they operate on trust in centralized entities. For instance, Tether (USDT), which accounts for over 60% of the stablecoin market, has admitted that only 75% of its reserves are held in cash and cash equivalents. The remaining 25% consists of riskier assets, implying that full redemption is not guaranteed.
Additionally, regulatory uncertainty looms over fiat stablecoins. Institutions like the World Bank have emphasized the need for compliance with anti-money laundering (AML) regulations and user verification (KYC). In the US, the proposed STABLE Act would require stablecoin issuers to obtain banking charters. Tether has faced multiple legal challenges, including ongoing investigations by the US Department of Justice.
The rapid expansion of fiat stablecoins increases their systemic importance—and the potential fallout if they fail. This underscores the need for a native, decentralized accounting unit that can serve as a reliable medium of exchange without exposure to centralization risks. The growth of DeFi has created an ideal environment for such innovations.
Elastic currencies like Ampleforth use algorithmic mechanisms to adjust supply based on market demand, maintaining price stability around a target value (e.g., $1). Their reflexive, speculative, and arbitrage-friendly characteristics have attracted significant interest, pushing the boundaries of monetary experimentation in crypto.
How Ampleforth Works: Stability Through Elasticity
Ampleforth’s protocol adjusts the supply of AMPL tokens every 24 hours based on the time-weighted average price (TWAP). This process, known as rebasing, occurs as follows:
- If the price is between $0.95 and $1.05, no rebase occurs.
- If the price exceeds $1.05, a positive rebase increases the supply, encouraging selling to lower the price.
- If the price falls below $0.95, a negative rebase reduces the supply, incentivizing buying to raise the price.
Crucially, the rebase affects all wallets proportionally. If a user holds 1000 AMPL and a positive rebase increases the total supply by 10%, their balance becomes 1100 AMPL. The user’s share of the total supply remains unchanged.
This design protects holders from inflationary devaluation—a common issue with traditional fiat currencies. Unlike central bank-controlled money, AMPL operates as an independent monetary primitive, free from institutional manipulation.
AMPL is now integrated into major DeFi platforms such as Aave and Balancer. Its supply growth and increasing adoption reflect a broader shift toward decentralized accounting units in crypto.
Stability, Elasticity, and Reflexivity in Ampleforth
The emergence of AMPL inspired many imitators, such as ESD and Basis Cash. Most of these projects failed due to flawed economic designs or unsustainable growth models.
Why Ampleforth Succeeded Where Others Failed
A key differentiator is Ampleforth’s rebase mechanism, which is applied network-wide and is simple to understand. Unlike competitors that used complex multi-token models, Ampleforth’s straightforward approach helped it gain broader acceptance.
Moreover, AMPL has demonstrated relative stability over time. Although it experienced high volatility initially, its price has increasingly stayed within the target range as the market matured. The team emphasizes that AMPL is not a stablecoin but an elastic currency that achieves stability through market growth.
The Elastic Currency Paradox
Elastic currencies face a fundamental paradox: to achieve price stability, they need a large market capitalization to dampen the effects of reflexivity (where price changes trigger supply changes that further amplify price movements). However, achieving a large market cap often requires periods of high reflexivity and speculation.
AMPL navigated this by initially attracting speculation and arbitrage activity, growing its market cap, and gradually stabilizing. Today, it serves as a viable accounting unit within DeFi, though it remains smaller than established stablecoins like DAI or USDC.
Ampleforth’s Recent Developments
Ampleforth continues to evolve with major upgrades and expansions:
FORTH and DAO Governance
In April 2021, Ampleforth launched FORTH, a governance token that enables community-led protocol decisions. FORTH holders can vote on economic parameters (like rebase rules) and technical features. The initial distribution allocated 67% of tokens to the community, promoting decentralized governance. FORTH also includes a 2% annual inflation rate to prevent excessive centralization.
Geyser V2: Improved Capital Efficiency
The original Geyser program offered liquidity mining rewards on Uniswap. The new V2 version introduces universal vaults, a non-custodial solution that lets users stake across multiple platforms without transferring tokens. This improves capital efficiency, reduces gas costs, and supports cross-chain rewards.
Cross-Chain Expansion
AMPL is now available on Binance Smart Chain (BSC), Acala, and TRON. The team plans to expand to other Layer 1 and Layer 2 networks, including Polkadot, Cosmos, and Polygon. While AMPL will exist on multiple chains, its monetary policy and governance will remain anchored on Ethereum for security.
Can Elastic Currencies Enter the Mainstream?
Ampleforth has proven resilient through market crashes and technical challenges. Its long-term vision is to become a universal unit of account not only in DeFi but also for real-world contracts.
The team believes that AMPL’s design makes it suitable for smart contracts and traditional agreements alike. As regulatory pressure increases on fiat stablecoins, elastic currencies may gain broader acceptance. Their potential use in cross-border payments and decentralized finance could eventually extend beyond the crypto ecosystem.
Frequently Asked Questions
What is an elastic currency?
An elastic currency uses algorithmic adjustments to its supply to maintain price stability around a target value. Unlike stablecoins, it doesn’t rely on collateral or centralized control.
How does Ampleforth’s rebase work?
The protocol checks the market price every 24 hours. If the price is outside the target range, it increases or decreases the total supply proportionally across all wallets.
Is AMPL a stablecoin?
No. AMPL is designed to be stable over the long term but can experience short-term volatility. Its elasticity helps it maintain purchasing power without relying on centralized reserves.
What is FORTH used for?
FORTH is the governance token for the Ampleforth protocol. Holders can vote on proposed changes to the system’s economic and technical parameters.
Can I use AMPL on other blockchains?
Yes. AMPL is now available on Ethereum, BSC, TRON, and more. The team is working on additional cross-chain integrations 👉 Explore cross-chain strategies.
What makes Ampleforth different from other algorithmic stablecoins?
Ampleforth uses a simple, transparent rebase mechanism that affects all holders equally. Its focus on long-term stability and decentralized governance has helped it survive where other projects failed.