On Elastic Currencies [AMPL - YAM comparison]

Is Holding during negative rebases worth it?

TL;DR: The rebase system established by elastic assets has not proven to be an effective mechanism to draw the token towards its target price. While AMPL has no real incentive to be held during negative rebases, the governance system of YAM gives it an extra subjective value that could make negative rebase periods shorter.

An Elastic Asset is one that adjusts supply in response to demand. When price is high, wallet balances increase and when price is low, wallet balances decrease. This process is what Ampleforth’s team has called a “rebase”, we will use this term a lot from now on.

Having followed the development of Ampleforth since its inception I have to say I am very curious to see how the negative rebases play out in YAM Finance. Basically, the main difference between the two protocols is that AMPL has stated their intention to remain a non-governed asset, while the YAM token has a governance value added to it, which is of course very subjective.

The main purpose of a rebase is to influence the price of an asset and bind it to a specific target price, in this case 1USD + inflation (AMPL) or 1 flat USD (YAM). However, in AMPL’s experience we have seen that people are motivated to buy during positive rebases and tend to sell during negative ones, some may argue that this is a temporary psychological factor due to a misunderstanding of how these new assets should be traded (based on marketcap and not price), however the outcome remains that there are large periods of consecutive positive and negative rebases, which instead of stabilizing the coin’s price it keeps it away from its target most of the time.

On the chart below you can see how the price of AMPL during the last 30 days has almost never stayed close (less than a 5% range) to its target price ($1.014).

It is my belief that there is no real incentive to hold AMPL during a negative rebase, the rational thing to do it to sell and wait for it to go back above its target price. In the other hand, YAM has shown to have a great community, the voting process of YAMv2 has been a successful one if you consider the amount of votes and community proposals that have been submitted. This leads me to belief that the governance value of YAMv3 is significant at least to a considerable number of people.

It is important to state however that in order to make a more in depth analysis about elastic currencies we would need a larger time frame (AMPL is very new and YAMv3 is not even out yet). In this sense, this article can only be taken as an initial observation of the price behavior of the main elastic asset in the market (AMPL) and no more than an educated guess of what we could expect with the launch of its most famous fork (YAM).

Time will tell how both of these elastic assets will behave, however the added governance value of YAMv3 could very well result in shorter negative rebase periods.


UPDATE: YAM has disabled re-base function.

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The original version of this article was published on Yam’s Forum, you can view it here: https://forum.yam.finance/t/holding-during-negative-rebases-ampl-yam-comparason/171/6