In the last article, we’ve mentioned that elastic currency + graded bonds are the ultimate solution to value storage. Yet, how is the solution implemented? Today’s article will elaborate upon the implementation plan of elastic currency in simple terms. Please forgive me for a little more concepts and words in the article. The Ampleforth Protocol will be introduced to explain from the perspective of its product design and architecture.

First, let’s introduce some concepts:

• CPI index: In the Ampleforth Protocol, CPI specifically refers to the proportion of dollars in 2019 to the current dollar. For example, on July 2, 2022, CPI was $1.106, which means that $1 in 2019 is equivalent to $1.106 on July 2, 2022 (in other words, the dollar has depreciated by more than 10% in the past three years). CPI is the “target price” of Ampleforth Protocol (target price will be used to refer to CPI hereafter). The target price is a standard that determines the change of AMPL’s total supply.

• Oracle Rate: Oracle Rate is the volume-weighted average price of AMPL against the US dollar in the past 24 hours offered by the Oracle service provider. Please note that this is not a real-time price, but a summary of that in the past 24 hours. It does lag.

• Target price range: It refers to the range of plus to minus 5% of the target price. If the target price is $1, the target price range is $0.95 to $1.05.

• Rebase: It is an automatic function of elastic supply. Rebase is implemented once a day in the Ampleforth Protocol. At 2 a.m. UTC time, the agreement compares the Oracle Rate with the target price. If the Oracle Rate is higher than the upper limit of the target price range, the supply will be expanded according to the holding ratio. If the Oracle Rate is within the target price range, the current supply will be maintained. If the Oracle Rate is lower than the lower limit of the target price range, the supply will be contracted according to the holding ratio. The algorithm and coefficients of the rebase function can be modified and optimized through community voting.

Therefore, the Ampleforth Protocol has three states: expansion, contraction and equilibrium.

The expansion state: In this state, the number of AMPL tokens held will be increased proportionally in the unit of wallet address. For example, I buy one AMPL token at the price of $1, and then the AMPL price suddenly soars to $10, far higher than the target price of $1.106. If the Oracle Rate is also $8.5 at the next rebase, the percentage of rebase would be +66.8535%. Finally, the number of AMPL I hold will be 1.67, and each AMPL is worth $10, with a total value of $16.7.

The contraction state: In this state, the number of AMPL tokens held will be reduced proportionally in the unit of wallet address. For instance, I buy one AMPL token at the price of $1, and then the AMPL price suddenly plummets to $0.1, far below the target price of $1.106. If the Oracle Rate is also $0.25 at the next rebase, the percentage of rebase would be -7.7396%. Finally, the number of AMPL I hold will be 0.92, and each AMPL is worth $0.1, with a total value of $0.09.

The equilibrium state: in this state, the number of AMPL tokens held will remain unchanged in the unit of wallet address. For example, I buy one AMPL token at the price of $1, and then the AMPL price comes to $1.06, with a gap of $0.05 between the target price of $1.106. If the Oracle Rate is also $1.06 at the next rebase, then the percentage of the rebase is 0%. Finally, the number of AMPL I hold remains unchanged, and each AMPL is worth $1.06, with a total value of $1.06.

Through this mechanism, we can draw the following conclusions:

a. Rebase algorithm can only affect the supply of AMPL yet cannot directly determine the price.

b. Since the Oracle Rate does lag, the rebase function has inertia. That is to say, if the price soars for 3 days and then plummets below $1, the Oracle Rate may be higher than the target price for 4 to 5 consecutive days to maintain inflation.

c. AMPL has the attribute of anti-inflation. On the one hand, the target price anchors the dollar value in 2019 to resist its inflation. On the other hand, AMPL is held in proportion in the unit of wallet address (unit of account) to resist its own inflation. That is to say, if you hold AMPL in your account that worth of 10% of the market value, no matter the total market value is $1 billion or $10, you will eventually occupy 10% of the total market value.

Taking AMPL as an example, we have finished explaining elastic currency as an infrastructure solution. In the three years since its launch, the price performance of AMPL has always fluctuated between $0.5 and $4, which proves that as a bottom asset, elastic currency can prepare the infrastructure of the solution to value storage problems. In the coming article, we will explain the final puzzle of value storage - the graded bonds plan.