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Independent Currency in a Multi-Chain World

Independent Currency in a Multi-Chain World

Ethereum, EOS, STEEM, ONT, NEO, NAS, Cardano, Tezos, POA, Dfinity, ThunderCore, Solana, RChain, Oasis Labs, Zilliqa, VeChain… there are enough Layer-1 blockchain projects released, or nearing release, that it’s hard for even a dedicated developer in the space to keep track of them all. Even individual platforms are planning sub-chains, like Ethereum’s sharding and plasma projects. There are chains on top of chains. How should you make sense of a world with so many chains?

Many Chains, or One Chain?

One question we often get is whether we believe there will be a single stablecoin that rules them all… we think the answer here should be no. We subscribe to Hayek’s theory that there should be many competing currencies and the best ones will get continued and lasting use. Competition between currencies will be driven by better stability, philosophy, economic scalability, or incentive alignment with network growth, and that competition between monies is itself a form of decentralization worth fighting for.

Just as different digital currencies have different behavioral characteristics, different layer-1 chains also have different platform characteristics. Ethereum explicitly trades transaction throughput for increased decentralization. EOS explicitly trades decentralization for increased transaction throughput. Each of these will be home to different kinds of applications that care about different tradeoffs.

DApp vs Money

If you’re a decentralized application, like Augur for example, it makes sense to choose one chain and deploy there. All your data is in one place and your users only need to manage one wallet to interact with it.

If you’re building a new money that aims to eventually become a medium of exchange, you want to be everywhere anyone is making a transaction. ALSO, if you’re aiming to be a real money, you need a way of regulating supply with market demand.

This seems to lead to a conflict between the needs of two different parts of a monetary system. A monetary policy looks a lot like a DApp and wants to be on a single platform, while a token contract looks a lot like a money and wants to be on every platform.

Ampleforth Everywhere

As a refresher, here is the single chain Ampleforth architecture as described in the whitepaper:

Single Chain Architecture

We’d like the Ampleforth Monetary Policy, Oracles, and Governance modules to exist on the chain with the highest level of decentralization.

Fortunately in the case of Ampleforth, the set of users who interact with the Monetary Policy is much smaller than the set of users who interact with the token. There is currently one publicly callable function, rebase, that users can call that will initiate a monetary policy action and this executes at most once every 24hrs. Similarly, our Oracle data sources receive data about 4 times per day. For these modules we’re not that concerned with transaction throughput, so we’ll gladly sacrifice speed for decentralization. As of today, Ethereum meets these needs very nicely. It has a high level of decentralization, enough usage to guard against 51% attacks, and has an amazing and supportive community of developers around it.

The ERC-20 (or perhaps in the future, the zkERC-20) contract will be deployed on every platform capable of supporting the arithmetic necessary to power the token transfer and supply operations, which is mostly simple arithmetic.

Now instead of one “Ampleforth ERC-20” box, there will be one on every platform on which we’ve launched. In order for this to work, we need a few things:

  • A user must be able to transfer Amples from their wallet on one chain to another wallet on a different chain — Value-transfer.
  • The monetary policy must be able to call rebase() on the token contract of a different chain, or otherwise sync its state to the other chain — State Transfer.

Thanks to Evan Kuo.

This Article was originally posted on Ampleforth's Medium Blog.

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Ray Dalio: Correlation 'Holy Grail'

Ray Dalio: Correlation 'Holy Grail'

In the video “Ray Dalio breaks down his ‘Holy Grail’”, he sets out to break down what were the marginal benefits of diversification within a portfolio. Ultimately, using the graph below, Ray Dalio broke it down into 3 pieces: Risk, which he called the standard deviation, the number of assets or the sample size, and the correlation of the bets.

Ray Dalio Discusses His Diversification "Holy Grail" 

What he found in doing so was the higher the correlation between assets in a portfolio, the lower the ability to reduce risk by increasing the number of investments. Essentially what this means is if you take a group of investments that are 60% correlated, there is no real reduction in risk after adding more than 4 investments to the portfolio. It’s only in diversifying your portfolio that allows you to cut your risk.

Correlation of Assets Impact on Risk and Return

Dalio says for an ideal return on investment, investors should find 15-20 good, uncorrelated return streams, as that will allow for the most return on investment while cutting risk. In taking 15-20 good investments, with a 0% correlation, using Dalio’s chart, the return to risk ratio is 1.25, meaning the probability of losing money in a year is 11%. With any one investment with a 10% risk, the probability of losing money in any given year is 40%, almost 4 times as much.

What this all boils down to is the power of diversification in balancing risk. There is no great 1 best investment, but you are able to improve your return to risk by 5 times as much when diversifying across 15-20 good investments.

Since Bitcoin was created, it has shown to be an asset that is uncorrelated to the stock market. This provides investors with a tool for diversifying their portfolio, but many investors prefer to have more than one tool. Since Bitcoin thousands of altcoins have come onto the scene. Combining Bitcoin, all altcoins and all future projects has the resulting effect of an entirely new asset class: Digital Assets.

That begs the question: How does this relate to digital assets? You need only look at Bitcoin and the subsequent other similar coins found in the market to see the issue in diversifying your digital assets. Correlations within the crypto space are for the most part high, but there are a few different coins that break the mold of digital assets, which allows investors to diversify and improve their return to risk. One such token is Ampleforth, whose movement pattern in reality should have a much lower correlation to Bitcoin. For those who subscribe to modern portfolio theory and have a mindset like Ray Dalio, seeking out digital assets that don’t correlate strongly with Bitcoin may allow investors to improve their return to risk, while digital assets on the whole may help reduce correlation to other traditional holdings.

To learn more about modern portfolio theory and how it can apply to digital assets, check out our piece on the subject which you can find here.

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Ampleforth is not a Stablecoin... (And that’s OK!)

Ampleforth is not a Stablecoin...            (And that’s OK!)

When people think of Stablecoins, they have something very specific in mind. A Stablecoin is meant to remove volatility. A Stablecoin is something you can use for payments. A Stablecoin is something you could use as a base trading pair on an exchange or as a refuge from positions in other digital assets. A Stablecoin is a stand-in for the dollar on the blockchain.

While Amples may be used for such tasks at some point in the far future, they are absolutely NOT stablecoins today. (And that’s OK!) Here’s why...

A Stablecoin removes volatility

Ampleforth does not try to remove volatility from the system. In fact, by design it allows volatility. Movements from the price target is the primary mechanism that engages the supply policy.

A Stablecoin can be used for payments

Until Amples have reached any kind of economic price-supply equilibrium, other stablecoins will be easier to use for payments and should be preferred for that use case. Dollars will be even easier still. Using Amples for payments will be about like using BTC or ZCash for payments, as we expect both price and supply to be volatile at launch.

A Stablecoin can be used as a base trading pair

Since Amples will likely be volatile, you’d be better served trading with a stablecoin (or the dollar) against Amples, instead of trying to use Amples as a base trading pair itself.

So Ample is not a stablecoin… Why was it created?

The Ample is an asset we’ve never seen before--it’s a Smart Commodity Money that incorporates price directly into supply. When supply needs to increase, it doesn’t go to any special group--it goes to everyone universally. Same for supply decreases.

Since commodities are naturally fair and independent, Amples were designed to uphold those same principles. Ample supply is governed strictly and automatically by rules, with no discretion on supply policy decisions. There are no added transaction fees, stability fees, or interest rates that need to be balanced with the market. There are no central collateral balance sheets that need to be maintained. There are no regular votes on monetary policy. Amples are never minted and sold, or bought and burned. Amples are fair, direct and independent, with no special class of stakeholders.

Amples will move differently

We expect that Amples will move differently from other digital assets, making them uniquely useful as a way of diversifying risk in a broader portfolio of assets or as a collateral asset in decentralized banks like MakerDAO.

Amples are macroeconomically friendly

Amples are a commodity money that doesn’t suffer the same deflationary drawbacks of fixed supply currencies.

Amples can scale economically

The Ampleforth protocol is an outside money that doesn’t rely on any collateralized debt. It can scale to a global ecosystem without having to lock up exogenous assets.
In short, Ampleforth is not trying to recreate fiat money on the blockchain. It is a new formulation of a smart, synthetic commodity money that we believe to be the next natural experiment after Bitcoin. In the beginning, it will likely be useful for diversifying risk within a portfolio or as an uncorrelated reserve asset. Much later, it could become an alternative to central bank money.

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1971 Nixon Shock: The End of the Bretton Woods System

1971 Nixon Shock: The End of the Bretton Woods System

In 1971 United States monetary policy changed in a major way. President Richard Nixon announced that the US dollar would no longer be redeemable for gold or other reserve assets. This effectively ended the Bretton Woods system and with the end of that system came a new period in US and global history.

This was an important moment in history, but it’s also important to understand not just what happened, but how the instruments at the center of the story, gold and US dollars, operate. By understanding their functions, as well as their limitations, we can begin to look forward with a plan to overcome their shortcomings.

This video dives into what exactly happened in 1971, and what compelled the US government to take the bold action they did. It also discusses the advantages and disadvantages of gold and dollars as both long term stores of value and mediums of exchange.

We still have gold and dollars. But this summer, we will have something that learns from their failures. We will have the first synthetic commodity money: Amples. Please check out our website and Red Book to learn more!

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Ampleforth at Consensus 2019

Ampleforth at Consensus 2019

Ampleforth is excited to announce that our team will be attending Consensus during Blockchain Week NYC in May! We look forward to engaging with our community and peers in the crypto and financial worlds. Representatives of Ampleforth will be participating in numerous panels and events throughout the week in New York. We invite you to celebrate blockchain with us by attending and meet some of our team members, investors and advisors!

The most notable moment for us will be when Ampleforth advisor Niall Ferguson of the Hoover Institution will be joined by Coinbase founder Brian Armstrong to discuss the history and future of money. This panel will take place on May 15th at 9:30 AM EST.  

Additionally, preceding the panel with Brian Armstrong, Niall Ferguson will be speaking about the Historical Perspective of Cryptocurrency. This will be held on May 15th at 9:00 AM. Niall has authored 14 books on history, economics, and currency. Niall’s books include 'The Ascent of Money: A Financial History of the World' and 'The Square and the Tower: Networks, Hierarchies, and the Struggle for Global Power.'   A complete listing of these events can be found on the Consensus 2019 agenda under the May 15th tab.

Be sure to find our team & community members on May 15th during Niall’s events, and follow us on Twitter (@AmpleforthOrg) for news and updates during Blockchain Week NYC.For more information and to learn what we are up to at Ampleforth join our Telegram and of visit our website

*** Update ***

After this post was made, and prior to Consensus, Niall needed to cancel his appearance for personal reasons.

Please stay tuned for future commentary and appearances from Ampleforth Advisor Niall Ferguson in the future.