Ampleforth (AMPL) Platform Issues Revised White Paper For Its Non-Correlated, Price-Stable Digital Asset Protocol
Digital Asset Platform Issues A Revised White Paper For Digital Asset Protocol
Ampleforth, a digital-asset-protocol for producing smart commodity-money, recently revealed that they have published an updated whitepaper for their digital asset protocol.
The abstract of the paper perfectly sums up the company’s vision with this venture. It says:
“Synthetic commodities, such as Bitcoin, have thus far demonstrated a low correlation with stocks, currencies, and precious metals. However, today’s synthetics are also highly correlated with each other and with Bitcoin. The natural question to ask is: can a synthetic commodity have low correlation with both Bitcoin and traditional asset groups?”
Now, this is a burning question most of us want to be answered.
Problems With The Correlation Of Bitcoin And Altcoins
The correlation between the top 200 coins and Bitcoin were higher in 2018 compared to any other year. One explanation for this is that 2018 coincided with a year-long bear market. It seems that rampant market sell-offs are closely aligned with higher correlations between Bitcoin and Altcoins.
This issues a serious threat to people looking to diversify their assets by investing in the crypto sphere. Harry Markowitz, the father of modern portfolio theory, postulated that the most important aspect of risk to consider is an asset’s contribution to the overall risk of the portfolio, rather than the risk of the asset in isolation. This means that by including assets with a low or negative correlation in your portfolio, you can reduce the overall variance and therefore reduce the risk of your portfolio. Assets that are negatively correlated or uncorrelated tend to cancel each other out.
The report concludes by stating:
“By our analysis, we conclude that the market dynamics of Amples cannot be determined by price alone, and require the consideration of supply in addition to the price. As a result, the volatility fingerprint of Amples will be distinct from current-generation synthetic commodities. While any structural distinction in movement pattern can benefit asset managers seeking to reduce diversifiable risk, the question of how correlated or uncorrelated Amples will be with existing synthetic commodities remains open.”
As of now, the creation of Amples looks like a distant Utopia, however, if they are able to execute their vision, they will find uses in diversification in crypto portfolios. It could be used in decentralized banks such as Maker DAO. In the long term, it can be used as an alternative t central-bank money, like bitcoin but with better macroeconomic prospects.
Please note: Although Amples have an equilibrium price-target, they cannot be thought of as a stablecoin initially. Specifically:
1. User balances can gain or lose value.
2. The time to reach equilibrium is market dependent.