A Thought Experiment in Elastic Leverage

Throughout DeFi there are 3 avenues that form a rather intriguing intersection: (1) volatility, (2) leverage, and stability. All of which remain areas of continuous experimentation. @SeamlessFi ’s upcoming Leverage Tokens and @AmpleforthOrg's SPOT token represent two orthogonal innovations - one focused on composable leverage, the other on volatility abstraction through elastic supply mechanics. This article explores the case for combining the two into a single structured instrument: a leveraged exposure to SPOT.Such a product would offer a novel asset class - delivering elastic, inflation-resistant purchasing power with embedded leverage, potentially appealing to both stablecoin allocators seeking amplified exposure, yield-hunters, and structured product designers exploring new DeFi primitives.

Assets in Focus

Seamless Protocol’s Leverage Tokens

Seamless Protocol introduces Leverage Tokens (LTs)(formerly known as: ILMs) as smart-contract-governed ERC-20 instruments that abstract the complexities of leveraged positions into a simple, composable asset. Rather than managing collateral, liquidation thresholds, and rebalance frequencies manually, users can hold a single token that encodes all this behavior natively.

Each LT automates the borrowing of collateral (e.g., USDC), executes asset conversions (e.g., into ETH, WBTC, or a structured token), and dynamically maintains target leverage ratios (e.g., 2x, 3x) through on-chain rebalancing logic. Crucially, these tokens are non-custodial and interoperable across DeFi - unlike traditional leveraged ETFs, which require intermediaries and off-chain operations.

Ampleforth’s SPOT Token

SPOT, a derivative of the elastic-supply asset AMPL, represents a stability-focused unit of account unconstrained by fiat pegs. It achieves this by algorithmically “tranching” AMPL's volatility. If we define tranches it’s separating high-volatility exposure from low-volatility, long-duration purchasing power claims. SPOT holders receive a synthetic claim on a rebased AMPL index, neutralizing supply swings while capturing long-term value preservation.

The result is a low volatility asset - resistant to fiat inflation, decentralized in supply, and inherently scarce. While not pegged, SPOT aims to preserve long-term purchasing power by abstracting the volatility of AMPL, an elastic supply asset that targets the CPI-adjusted 2019 dollar. While not pegged to a basket of goods, SPOT provides a stable unit of account through its underlying rebasing mechanics - offering a distinct alternative to both USDC-style stablecoins (primarily fiat-backed) and ETH-style volatility assets.

Leveraging Elastic Stability

Leveraged Bond ETFs in Low-Rate Environments

In the post-2008 monetary regime, interest rates were held at historically low levels, forcing yield-seeking investors to search for instruments that could amplify modest bond returns. Leveraged bond ETFs emerged as a practical solution, offering exposure to long-duration Treasuries with magnified sensitivity to rate movements.

Among the most illustrative examples were:

These instruments succeeded not because their underlying assets were volatile, but because the macro environment consistently rewarded a directional thesis - declining rates and disinflation. By wrapping that exposure in a leverage-enabled token, investors gained capital-efficient access to long-duration yield trends.

Leveraging SPOT as a Purchasing Power Thesis

Now transpose this structure to a DeFi-native macro landscape. Suppose the prevailing risk is still the dreaded inflation - where fiat-denominated stablecoins lose real value over time (in parallel with its fiat collateral), and monetary debasement is the dominant trend.

An investor recognizing the limitations of pegged stablecoins might allocate to SPOT: a low volatility asset designed to preserve purchasing power through rebasing and elastic supply collateral. But rather than holding 1x SPOT, they mint 2x SPOT-LT or even 3x SPOT-LT through Seamless Protocol, demonstrating a macro thesis in a capital-efficient, programmable format.

Suppose SPOT appreciates 8% over a year due to AMPL supply contraction and CPI-adjusted dynamics. A 1x SPOT holder maintains purchasing power; a 2x SPOT-LT holder could see ~16% upside, while a 3x version could realize ~24%.

To better illustrate how SPOT-LTs might behave in practice, I went ahead and performed a backtest simulation using historical SPOT price data over the past year.

In this simulation, we evaluated the historical performance of SPOT and its hypothetical leveraged variants: (1) 2x SPOT-LT, (2) 3x SPOT-LT, and (3) 2x SPOT-LT with a rebalance decay. The test period spanned from May 1st, 2024 - May 15th, 2025. Price data was source directly from @coingecko.

The results show that 2x SPOT-LT amplified the underlying SPOT trajectory effectively (as expected), particularly during periods of price appreciation. Its compounded return over the year significantly exceeded the base, 1x SPOT return, validating the thesis that leveraged exposure can capitalize on steady, long-term purchasing power gains.

The 3x SPOT-LT variant demonstrated even greater upside potential (also as expected) but with markedly higher volatility. Its performance swung more dramatically, with sharper drawdowns (especially when using recent price data) and steeper rallies - making it far more suitable for users with higher risk profiles and shorter rebalance horizons.

To account for practical execution realities, we also modeled a 2x SPOT-LT with a 0.05% daily rebalance drag. This version still outperformed the baseline 1x SPOT token but showed modest underperformance relative to the 2x variant - further demonstrating & underscoring how compounded small daily frictions can gradually then suddenly erode returns over time.

Overall, the backtest affirms the feasibility of SPOT-LTs as a tool for capital-efficient exposure to long-term purchasing power preservation. From a risk standpoint, investors must still align leverage selection based on their risk appetites, market outlook/conviction, and portfolio strategy

Yield Composability

A leveraged SPOT token unlocks a structurally unique behavior: capital-efficient inflation hedging with potential for layered yield. SPOT may offer staking rewards or emission-based incentives, which - if routed through Leverage Tokens - can help offset borrow costs.

More broadly, SPOT sits at the center of a composable ecosystem. It underpins @asymmetryfin ampUSD, a decentralized CDP stablecoin backed by SPOT and AMPL. This positions ampUSD as a uniquely inflation-aware stablecoin - one that tracks purchasing power rather than nominal fiat - and presents natural synergies with SPOT-LTs.

By integrating ampUSD into SPOT-LT vaults, protocols could create leveraged products that not only preserve purchasing power but also earn native yield. For instance:

• A 2x SPOT-LT vault collateralized by ampUSD could maintain a delta-neutral exposure to fiat inflation while generating yield from ampUSD stability pool staking or liquidity provision.
• Alternatively, users could borrow ampUSD against SPOT-LT positions, turning an inflation-hedged position into an actively productive, yield-enhanced strategy.

It’s worth noting that since most DeFi pairs do not support rebasing assets directly, a wrapped version of ampUSD - similar to wAMPL - may be required to maintain LP compatibility or composability in structured vaults.

This creates a new design space where hedging and earning are not mutually exclusive. Rather than choosing between capital efficiency and yield generation, SPOT-LT-based strategies enable both.

What can other players do?

(1) For Liquidity Providers

The introduction of SPOT-Leverage Tokens (SPOT-LTs) enables novel liquidity provisioning opportunities by facilitating structured LP pairs between tranches of volatility or monetary exposure. For example, pairing SPOT/2xSPOT-LT or SPOT/wAMPL allows liquidity providers to capture yield from volatility compression or mean-reversion dynamics between correlated assets.

In a SPOT/2xSPOT-LT pool, one asset (SPOT) represents a low-volatility, with stability orientation, while the other (2xSPOT-LT) represents a levered expression of that same thesis. As macro conditions evolve (e.g., during inflationary periods), SPOT may drift upward, while 2xSPOT-LT accelerates - creating arbitrage and rebalancing flows between the two. Liquidity providers stand to profit from this divergence via swap fees and temporary price dislocations, especially in AMMs with concentrated liquidity ranges such as @uniswap v3 or @curvefinance tricrypto pools.

Similarly, SPOT/wAMPL pools offer structured exposure to elastic-supply dynamics, where the volatility of wAMPL (a wrapped, non-rebasing version of AMPL) can be paired against SPOT to facilitate effective LP strategies. This setup avoids the technical challenges of rebasing within AMMs while still allowing for volatility-tranche pairings.

Importantly, protocol-level incentives - such as liquidity mining rewards, token emissions, or protocol-owned liquidity seeding - can further enhance base yield, creating sustainable opportunities for capital to flow into these markets. For LPs seeking non-directional yield in inflation-sensitive environments, SPOT-LT pairs represent a new primitive for structured and efficient exposure.

(2) For Index Designers

The abstraction of volatility through SPOT and of leverage through Seamless Protocol opens up a new design opportunity for DeFi-native indices that track macroeconomic variables rather than short-term price speculation.

Historically, most crypto indices have either tracked top-cap assets (e.g., DPI, BED) or mimicked TradFi-style exposures. However, these products often fail to reflect real-world economic narratives, such as inflation resistance, purchasing power retention, or programmable monetary policy.

With SPOT-LTs, index designers can now construct modular, thesis-driven portfolios using inflation-aware primitives. For instance, a DeFi “Purchasing Power Index” could combine:

• SPOT-LT: Amplified exposure to purchasing power
• stETH: Yield-bearing assets representing productive staking collateral
• ampUSD: A non-pegged stablecoin backed by SPOT and AMPL
• Other stables or non-pegged, rebasing assets: To diversify monetary models

Such an index could be rebalanced algorithmically based on macro conditions (e.g., rising CPI, interest rate changes), enabling on-chain asset managers or DAOs to deploy capital with long-horizon, monetary-policy-aware strategies.

Furthermore, the ERC-20 composability of these components allows for packaging the entire index as a single wrapper token - facilitating LP inclusion, yield farming, or recursive collateralization. These indices could serve as the foundation for fixed-income portfolios, DAO treasuries, or real-return vaults that outperform fiat-based benchmarks over time.

(3) For Stablecoin Users

Most stablecoin users today hold fiat-pegged assets (e.g., USDC, USDT, DAI) that are designed for price stability in nominal terms but suffer from silent erosion in purchasing power over time. Especially during inflationary periods, holding dollar-denominated stablecoins may preserve $1 nominally but lose 5–10% in real-world value annually.

SPOT-LTs offer an intermediate solution that sits between stability and upside. Rather than peg to fiat, SPOT maintains purchasing power by rebasing supply in response to macroeconomic shifts (due to AMPL and its corresponding tranches serving as collateral). A leveraged version of SPOT - via Seamless Protocol - allows users to amplify their purchasing power thesis while still maintaining a lower volatility profile than traditional crypto assets.

From a user perspective, SPOT-LTs could function as:

• A savings-like account that grows in value in real terms over time
• A hedging instrument against fiat debasement and currency shocks
• A building block in inflation-protected financial products, such as smart vaults or retirement-oriented yield portfolios

The Dawn of Purchasing-Power Engineering

As we’re all aware, inflation has quietly become the defining economic challenge of our era, and SPOT-LTs [could] arrive just as the crypto community - and soon, retail TradFi - begins to reckon with the slow bleed of fiat value. By encoding leverage atop an elastic-supply-collateralized low-volatility asset, these tokens transform a once-esoteric rebasing mechanism into a familiar thesis: magnify purchasing power preservation. As word spreads beyond DeFi forums into investor newsletters and brokerage dashboards, SPOT-LTs may join the broader zeitgeist of “purchasing-power engineering” - an era in which programmable monetary primitives stand alongside stocks and bonds as must-have tools for hedging long-term inflation.

Disclaimer: This article is for educational and ideation purposes only and should not be interpreted as financial or investment advice.