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The Amplifier's Guide to Alternating Monetary Policy (AMP)
The Document to answer all questions related to the tokenomics and monetary mechanics underlying the Perpetual Yield Protocol. Here’s an in-depth explanation of AmpliFi’s AMP.
When AmpliFi was created, the creators sought to drive DeFi forward in pursuit of a model for true sustainable rewards year after year. Naturally, this is a difficult problem to tackle, but the mathematical problem underlying it is very straightforward, “how do you offer emissions without inflating supply?”
Every previous project that has set out to achieve this has failed. Until AmpliFi.
When you create an Amplifier, you accelerate deflationary pressure on the native token, contribute to crowdsourcing blockchain validators as a pathway to passive yield, and benefit from revenue-sharing and governance authority. It is the process of allocating funding to validator acquisition, securely bringing them online, and then returning yield through the native token in the form of blockchain-specific rewards that make #AMPLIFI intrinsically valuable.
The starting supply of #AMPLIFI was 121,373 and there are no plans to increase this cap, nor do we reasonably anticipate a need to do so. This cap may only ever be adjusted in the face of an extremely compelling underlying reason, subject to the full weight and force of community governance voting authority.
Early on, it was essential to garner interest for the protocol and drive value to the native #AMPLIFI token through every means possible. Initially, this meant limiting circulating supply, amplifying yields, and capturing value through token trading fees to propel the AmpliFi ecosystem forward. It was this capital “bootstrapping” that allowed AmpliFi to acquire its first Ethereum Validator (with many more coming). It’s also this approach that enabled the protocol to provide competitive yield to Fused Amplifier holders, as well as gAMP holders. AmpliFi wouldn’t be where it is today without these mechanisms. Over time, like any start-up, these incentives begin transitioning into the “core” of the business. Do you recall, for example, how many years companies like Tesla remained unprofitable? Or for how long Jeff Bezos worked building Amazon out of his garage? Time and time again, it is the long-term vision and dedication to the product and its customers that brought them great success. With AmpliFi, we have balanced day 1 profitability alongside incentives that have enabled us to scale, and will continue to do so. As we look 5-10 years into the future of the protocol, it’s important we calibrate internal monetary policy to meet future demands of an ever-changing market. And to do that, we must first ensure our holders fully grasp the nature of the mechanics underlying #AMPLIFI.
Let’s dive into exactly how this works. When a holder purchases 20 #AMPLIFI tokens, he becomes eligible to trade his tokens for an Amplifier. Upon exchanging the tokens for an Amplifier, those 20 tokens are burned. If the supply was 121,373, it’s now 121,353. These #AMPLIFI tokens are not sent to a burn address, nor are they directed to the Rewards Pool; rather they are removed from supply, as though they never existed. In this aspect, #AMPLIFI is net-deflationary.
You might then ask, “where do native rewards come from?” Native rewards are sourced from the Rewards Pool, but this Rewards Pool is distinct from all others before it. It is not static, but rather, dynamic; this is where some confusion resides across holders.
At genesis, 39,000 tokens were allocated to the Rewards Pool. As Amplifiers, Stakers, and Liquidity Miners earn rewards over weeks, months, and years, those rewards are directed from the Rewards Pool to the respective parties and those tokens are either held in users’ wallets, sold into the Liquidity Pool, or used to create Transistors, Amplifiers, or otherwise. Thus, if 1,000 #AMPLIFI tokens are drawn from the Rewards Pool over a given period, the token quantity in the Rewards Pool reduces from 39,000 to 38,000.
Eventually, over a period of years, this pool expectedly and necessarily depletes as holders earn rewards. Upon reaching 5% of its original capacity (just under 2,000 tokens), in 8 incremental stages, tokens are minted and injected into the Rewards Pool to refill it to 78% its original capacity, or 30,420 #AMPLIFI. Thus, even upon the completion of a full Burn-and-Refill cycle, the total supply is well under 121,373. It is only at this replenishment stage that the quantity of #AMPLIFI increases, and then the cycle of deflation restarts. So, does this make #AMPLIFI “inflationary”? No. Taking pennies from a Piggy Bank and then placing them back in the same Piggy Bank does not make it an inflationary Piggy Bank. In essence, you could quantify #AMPLIFI as “deflationary” 99% of the time, and “inflationary” 1% of the time, i.e. during the brief period of Rewards Pool Replenishment. This process is performed manually at present and will become automated via smart contracts in 2023. This is the cyclical essence of Alternating Monetary Policy -- to provide emissions without the potential of burdensome inflation. To learn more about AmpliFi's Rewards Pool Replenishment Schedule, click here.
#AMPLIFI is intended to remain net-deflationary for many years and may remain so forever. That said, the creators of AmpliFi structured the native token to be able to adjust to changing economic circumstances, both at the macro and micro levels. #AMPLIFI is net-deflationary so long as for each Amplifier created, another is created over the next year. If a new Amplifier is not created within that time frame, the market has determined that the cost of an Amplifier is too expensive and thus, out of reach for most -- this can be considered the “peak” of a micro-economy economic “boom,” where price has reached a ceiling and volume ceases. In the event this happens, some holders would notice that new Amplifiers are not being created and some would likely sell their tokens into the Liquidity Pool, reducing the price of #AMPLIFI. Given that the underlying intrinsic value in $ETH of a Fused Amplifier is still the same in both “booms” and “recessions” (retracements/corrections) of the #AMPLIFI price chart, individuals previously excluded would be provided the opportunity to enter at a reduced cost to capitalize on the $ETH value and stability underpinning #AMPLIFI, Fused Amplifiers, and the protocol itself. Then, the process restarts. With #AMPLIFI less costly, new or existing users acquire more Amplifiers, and the Burn-and-Refill cycle begins anew. This is a cyclical process that can continue ad infinitum, always generating $ETH and native yield along the way. Here still, the supply is under 121,373.
These are safeguards built-in to the protocol; in fact, they are the very reason behind tying the value of $ETH to the native #AMPLIFI token. Market economics should always operate in favor of this aforementioned model, which also benefits from the incorporation of game theory. Imagine, however, that every single user with an Amplifier forever claims rewards at exactly 1 year, experiences minimal decay, and that no one creates any new Amplifiers for months or years, that AmpliFi conducts no buybacks, that AmpliFi conducts no burns, that not even AmpliFi creates a single Amplifier, and that not a single trader capitalizes on the arbitrage opportunity via $ETH that an undervalued #AMPLIFI could provide -- for years. Yet in this same hypothetical world, imagine that despite 0 Amplifier creation, all Amplifier holders continue providing monthly operation fees, and again -- imagine not a single Amplifier is created, but more and more tokens are sold into the liquidity pool, and in this world, no one buys Amplifiers to generate $ETH rewards or to leverage AmpliFi’s validators in their favor by fusing their Amplifiers. In this hypothetical scenario, where holders continue to draw native yield, the Rewards Pool could be refilled to the extent the original supply is exceeded for a time being until new users capitalize on the $ETH value underlying #AMPLIFI, and begin creating Amplifiers to again begin earning $ETH, again bringing total supply back into parity. Even in this exceedingly unlikely case, however, the Community could instead vote simply not to increase the supply, and to instead temporarily deactivate Amplifier rewards until new Amplifiers are created and the Burn-and-Refill cycle restarts again. In such a scenario, the Treasury would enter and expend all available resources to ensure the Burn-and-Refill cycle does not encounter such a situation, and if it did, that the situation would be short-lived, much like an economic stimulus.
A second potential scenario involves one in which the rate of emissions exceeds the rate of deflation for an undefined period of time. For reference, take a look at the father of cryptocurrencies: Bitcoin. Without its automated incentives in the form of token inflation, participants of the network would never be motivated to provide ongoing consensus for the blockchain. Likewise, though $ETH is now net-deflationary (driven by reduced issuance, blockspace demand, and EIP-1559 burning), the token still inflates as a reward and incentive mechanism. A similar concept applies to the US Dollar - if it were a hyper-deflationary asset, the economy would collapse (both domestically and globally). It’s not inflation itself that’s the issue, it’s mismanaged inflation. Bitcoin’s inflationary schedule is immutable, transparent, and immune to subjectivity. Ethereum is transparent and fluctuates with the number of transactions performed and the number of stakers securing the network. While Bitcoin has a fixed supply and Ethereum does not, both are still “inflationary” through their emissions models. Conversely, the US dollar’s inflationary schedule is problematic, unpredictable, and continuously leads to prolonged periods of uncertainty. You can decide which is a safer long-term store of value between the crypto-native assets and the US dollar.
For several reasons, AmpliFi incorporates a similar policy for token economics. Without it, the value of the #AMPLIFI token would reach far beyond the parity we strive for it to have with its external revenue sources, and become permanently unattainable for the average DeFi user. If #AMPLIFI only appeals and caters to the ultra-wealthy, we will have failed. The best way to illustrate this is with an example:
In the future, when AmpliFi is running thousands of validators, there will come a time when daily $ETH rewards will drive immense value to Fused Amplifier holders. More precisely, at an estimated validator yield of 6.5%, and with the protocol operating approximately 5,700 validators, AmpliFi will generate enough yield to set up an additional validator DAILY. At this rate, hundreds of $ETH will be distributed to Fused Amplifiers on a monthly basis, driving inaccessible intrinsic value to the native token, as it would price out all working-class and middle-class holders -- hardly fulfilling the intention of the project. As a result, it’s essential that AmpliFi balances short-term and mid-term incentives with a forward-looking monetary policy oriented towards safeguarding growth and sustainability over the very long term.
One of the best aspects of the protocol is the manner in which it self-regulates token supply well into the future. If prices become unattainable or unattractive for participants relative to the external revenue generated, demand for Amplifiers will decrease, which in turn drops the rate at which #AMPLIFI tokens are burned. This process could lead to a period in AmpliFi’s history where token emissions outpace tokens burned, which could prompt the token supply to temporarily increase. As a result, we’d expect to see a retracement in the native token price until #AMPLIFI once again reaches “fair market value.” Following this rebalancing, users would identify this as an acquisition opportunity, and subsequently create new Amplifiers, once again contributing to token deflation. During this time, demand would outpace supply and #AMPLIFI is then cleared to enter its next discovery phase. Over the coming years, we expect the protocol to be exposed to several of these “cycles,” all of which are controlled by pre-determined internal mechanics. While the community could choose not to refill the Rewards Pool in this event, doing so would likely stifle the native token’s ability to naturally find its fair market value; in such a scenario, it would instead be recommended to enable the protocol to allow emissions to outpace deflation and to grant the native token the ability to find its fair market value naturally, again restarting the cycle starting from the point at which deflation outpaces emissions. The ‘risk’ that emissions could outpace deflation is not a risk at all; rather it is a sign that the market finds #AMPLIFI overvalued (whether accurately or inaccurately), and allowing time to find balance again is the essence of a fair market. Although outpacing deflation is neither presently anticipated nor on the horizon, it is not the enemy -- mismanaged monetary policy is. That said, we also understand that depending on user behavior and the structured products chosen, internal modeling must remain dynamic to account for the protocol’s evolution, which is why governance exists and why the founding team stands at the community’s side for ongoing support and recommendations into the future.
Over time, for example, this dynamic shifting in monetary policy could mean AmpliFi’s governance group (gAMP holders) builds a fixed emissions mechanism to keep the native token trading in parity with external revenue whilst providing adequate incentives for the continued growth of the protocol. While this wouldn’t be anticipated to take place until far into the future (several years), it’s important the protocol plans for and sets intentionality around upcoming phases of the project, especially as it transcends its early-stage growth. The granular details of this long-term vision will be mapped out as we progress further into the AmpliFi roadmap and as AmpliFi employs additional external revenue sources. For now, it’s most important we make it clear that we are planning for, anticipating, and relying on a progressive transformation of our monetary policy, all built on the foundation of our existing self-regulating mechanics, with the greatest potential sustained growth and equity of the project in mind.
Every protocol has some aspect of centralized risk. For example, most staked $ETH is managed by Coinbase as the custodian, Bitcoin relies largely on massive industrial miners (massive mining facilities) scattered worldwide, Metamask is managed by a large bank and has centralized points of failure, and most of Web3 is in some form or fashion dependent on Amazon Web Services (AWS), Alchemy, and/or Infura. In fact, the only way to “eliminate” centralized risk in a specific token is to burn all liquidity tokens and renounce the contract. Even then, the creators of those tokens are fully dependent on the collective marketing efforts of a few. The overwhelming majority of Top 100 projects retain some form of control over the smart contracts they deploy. Synthetix, for example, maintains a mint function; and where there is no mint function, there is generally a massive, overwhelming supply allocation on an unbalanced, inequitable vesting schedule that rightfully scares off smaller potential holders as looming token unlocks cause panic. AmpliFi currently incorporates a mint function to manually replenish the Rewards Pool after depletion over months or years, depending on the activity of users. Thus, AmpliFi too has one element of centralized risk. To remediate this potential risk, the development team intends to automate minting (Pool Replenishment) through a separate contract in 2023. Specifically, by splitting ownership of the current contract and directing ownership of the suite of tools (e.g. decay adjustments) available to the team to a different contract, AmpliFi can virtually eliminate this remaining aspect of centralized risk, providing peace of mind to the community of holders.
AmpliFi continues to grow each day as we reach new eyes and target new audiences. This is a protocol that has successfully managed to create a new asset class of digital currencies entirely -- a decentralized intrinsically-valuable token for passive yield. The founding team recognizes that the token economics behind #AMPLIFI may seem foreign to even DeFi natives, but new ideas often generate controversy and are viewed with skepticism until they establish themselves through proven results. AmpliFi has done so, and aims to continue delivering innovations and improvements in the months and years ahead. AmpliFi would not exist without each of you, and we ask you to take a moment to recognize that you are personally a part of one of the greatest moments in the history of cryptocurrencies -- namely, establishing a means to tie intrinsic value to a passive yield model for prolonged sustainability -- a feat no other project has ever successfully incorporated. As time progresses and our contributions to the space continue to accrue, and as each of your voices are heard far and wide across broader audiences, this community -- the #AMPLIFI community -- will be tasked with wielding tremendous power across blockchains. Remember, it will be on you to carry this torch as AmpliFi grows. Prepare accordingly.