What happened to "AMPL," the stablecoin with alternative scarcity design, that dropped 70% in three days?

According to data from Coingecko, the total market capitalization of the Ampleforth protocol's token AMPL has dropped from $719 million on Monday to $270 million today, a decrease of over 60% in the past three days. Additionally, the price of the AMPL token has also fallen by approximately 75% from Monday to now, with the current trading price around $0.72.

For the Ampleforth protocol, the price of the AMPL token has a more drastic impact on the total market capitalization due to the protocol's unique adjustment mechanism.

Stablecoin with Supply-Demand Adjustment Mechanism

Ampleforth is a stablecoin project based on a supply-demand adjustment strategy, aiming to achieve a "low-volatility cryptocurrency" with a flexible supply policy. The project has garnered support from many early-stage investors, including Pantera Capital, Arrington XRP Capital, Slow Ventures, and Coinbase CEO Brian Armstrong. According to Crunchbase data, Ampleforth has raised a total of $9.8 million in two rounds of venture capital funding. Last year, Ampleforth also conducted an IEO fundraising through the Bitfinex exchange, selling out within 11 seconds and raising $5 million.

Unlike stablecoins like USDC and USDT, Ampleforth protocol has designed a unique elastic supply mechanism. When the price of AMPL fluctuates, the protocol will implement "expanding" (quantitative easing) or "contracting" (quantitative tightening) to achieve a new price balance among all AMPL holders.

For example, if a user's wallet holds 100 AMPL tokens, worth $100 in total, and the price of AMPL rises to $1.5, the total value becomes $150. The system will automatically adjust by issuing more tokens, so the user will hold 150 tokens at a price of $1 each. This mechanism can be a double-edged sword for AMPL holders because in the event of AMPL being sold off, not only will the value of the tokens in investors' hands depreciate, but the number of tokens held will also decrease simultaneously.

Twentyfold Increase in Twenty Days Draws Attention

Last week, the market capitalization of AMPL was $3.305 billion, but on June 1st, it was only $7.8 million. This means that in less than two months, the market capitalization of AMPL has grown by 4130%. The value of the AMPL token rose from around $1 in June to nearly $4 in mid-July, attracting public interest in this project's mechanism.

However, the AMPL protocol is built on Ethereum smart contracts, and with the rise of DeFi, investors and the crypto community are hopeful about this unique stablecoin. Yet, looking at the mechanism and vision of the AMPL protocol, it is destined to be a highly controversial project.

The Block's Research Director Larry Cermak also tweeted about the high-risk nature of this project:

It's time to reevaluate these people. They keep hyping up without mentioning the potential risk of rapid devaluation, it's really a mess.

Larry believes that the "expanding" or "contracting" of AMPL tokens comes from investors' emotions rather than any economic demand. He points out:

At best, Ampleforth's token adjustments are more like a psychological trick rather than actual economic demand. There is no reason to believe that AMPL volatility will decrease, and compared to other cryptocurrencies, it cannot function effectively through adjustment mechanisms.

In addition, on July 20th, the DeFi project Balancer removed the AMPL token from its mining whitelist, citing concerns about the possibility of deflationary token attacks and stating that they will discuss with the Ampleforth team and temporarily remove the token.