Ampleforth introduces ‘low-volatility’ alternative to fiat stablecoins

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Fragments, the developer that engineered the Ampleforth protocol, and the Ampleforth Foundation, have announced plans to introduce an alternative to fiat stablecoins, combining features of commodity-based money and peer-to-peer digital cash to provide a volatility-resistant digital asset called SPOT.

According to the technical documentation, SPOT’s volatility-reducing properties are achieved by segmenting the volatility of Ampleforth’s native currency, AMPL, into two separate assets through a process known as tranching.

The first of these assets, referred to as the “senior tranche,” is the low-volatility SPOT token. The second asset produced by the segmentation is a staked version of AMPL, called the “junior tranche,” and acts as a sponge that soaks up the lion’s share of network volatility, thereby shielding SPOT from significant price swings.

A simplified graphic depicting the tranching mechanism. Source: Spot technical docs

Any protocol user can deposit AMPL tokens to mint the requisite amount of SPOT and stAMPL. Conversely, users can also redeem their derivative tokens for the native AMPL at a time of their choosing.

Related: Bitcoin or bust: Companies add BTC to treasury for long-term potential.

Under the hood 

Once the AMPL is deposited into the SPOT protocol and the corresponding fixed-term tranches have been created, the tranches are bundled together according to their senior or junior status.

Because the tranches have a fixed term of one week, they automatically convert to AMPL once the derivative assets have reached their fixed-term maturity date. The SPOT protocol maintains continuity by constantly recycling the tranches that are near maturity and replacing them with new tranches of segmented-volatility assets. 

A simplified visual highlighting the perpetual nature of SPOT tranches. Source: Spot technical docs

Segmenting volatility into derivative instruments that constantly recycle is akin to other forms of perpetual derivative contracts, like perpetual futures. The goal is to constrain volatility, not entirely eliminate it, and funnel that constrained volatility into a store-of-value with commercial applications.

Spokespeople for Ampleforth told Cointelegraph that SPOT’s minimum volatility levels would mirror the 2019 consumer price index-adjusted U.S. dollar. As the tranches mature to full-term, their volatility matches that of the underlying AMPL.

High inflationary environments and centralized instability 

Ampleforth’s newly proposed digital asset comes amid growing fears of soaring inflation and geopolitical instability, which could threaten the current financial system.

The United States' national debt is nearing $35 trillion, and annualized interest payments are set to exceed national defense spending. Some analysts fear that the United States’ deteriorating fiscal position could upend the global financial system, which is overly reliant on the U.S. dollar as its reserve currency.

Former U.S. Speaker of the House Paul Ryan recently floated the idea of dollar-pegged fiat stablecoins to alleviate the massive debt obligations caused by years of fiscal deficits and monetary printing.

Moreover, corporations are increasingly turning to Bitcoin (BTC) treasury strategies to preserve their wealth and purchasing power in the face of reckless monetary debasement.

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