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Debt denomination is a key use case of AMPL. Let’s take a look at why:
You have the option to borrow 1 of 4 assets, but you must repay the same asset in 10 years time: USD, AMPL, GOLD, or BTC. Which do you choose?
The risks of each include price and inflation risk. In 10 years, USD may have experienced significant inflation (making it interesting to borrow, but perhaps not to lend…), whereas both Gold and Bitcoin may have changed dramatically in price (making them interesting to lend, but not borrow…). Imagine that instead of buying 2 pizzas with Bitcoin many years ago, that individual had borrowed Bitcoin to buy the pizzas. They would find it hard to repay that loan today…
AMPL solves all of these issues through its elastic supply protocol. The price target is inflation-adjusted and the protocol is designed to always seek the equilibrium price target over time.
Therefore, if you borrowed 1,000 AMPL today, at around $1,000 USD value, you could enjoy a fair degree of certainty that in 10 years you will be able to purchase again 1,000 AMPL for around the equivalent of $1,000 USD in today’s dollars. This makes AMPL uniquely safe for debt denomination. This can be seen empirically by observing AMPL’s price performance in the market for over 12+ months now: the protocol has succeeded in driving the price back towards equilibrium repeatedly, despite dramatic changes in market capitalization.
Having AMPL available for on-chain borrow/lend is one of the key steps to move AMPL forward as a unique DeFi asset and building block.
As an aside, this also is what makes AMPL a more ideal base money. Because of the extreme long-term price volatility of fixed supply assets like gold and bitcoin, they are less suited for long-term debt denomination. On the other hand, discretionary fiat currencies are problematic because of a lack of clarity around how to manage monetary inflation rates in relation to macroeconomic conditions. AMPL solves these problems with a clear and simple rules-based monetary policy and elastic currency supply. The result is that AMPL can serve as a more stable and sound economic foundation for complex financial systems.
Enabling borrow/lend for AMPL is a crucial first step in this process.