wAMPL: Unlocking AMPL's DeFi Potential

visual by @iamXD97

I. Introduction

Ampleforth’s AMPL token was the first rebasing token on the market in DeFi summer 2019. Ever since, the idea behind rebasing has spread like a wildfire across DeFI, inspiring major projects tokens, such as Lido’s stETH. In AMPL’s case, the rebasing mechanism follows one simple directive: keep AMPL’s price at the CPI-adjusted 2019 USD value through systematic, algorithmically defined supply adjustments. Despite the genius idea behind rebasing, there are challenges in regards to integration rebasing tokens into the broader DeFi ecosystem. Therefore, the Ampleforth team came up with a simple, yet effective solution: wAMPL.

II. The Problem: AMPL's DeFi Compatibility Challenge

AMPL’s rebasing mechanism leads to a change in user’s balances on a daily basis, given that supply adjustments were required to bring the price back to target. This algorithmic change in balance, without any network transaction, creates technical hurdles, especially if the tokes are held by smart contracts (e.g. vaults) as part of a DeFi protocol. The most prominent example is the AMPL-AAVE fiasco of 2020. Aave initially listed AMPL as a collateral asset without fully accounting for its rebasing mechanism. This created a critical vulnerability where the protocol couldn't properly track the changing token balances and had to discontinue the AMPL lending market. This incident highlights the need for a DeFi compatible version of AMPL, and rebasing tokens in general.

III. The Solution: Understanding wAMPL

wAMPL is a "wrapper" that converts rebasing AMPL into a non-rebasing token. Think of it like putting AMPL in a container that maintains constant shares while the value inside fluctuates. As such, wAMPL just represents a proportional claim of ownership of all the AMPL tokens sitting in the wrapper contract.

Example:

You wrap 1,000 AMPL when total pool = 10,000 AMPL
You receive wAMPL representing 10% ownership
After positive rebase: pool = 11,000 AMPL
Your wAMPL is still the same amount, but now worth 1,100 AMPL
After negative rebase: pool = 9,000 AMPL
Your wAMPL is still still the same amount, but now worth 900 AMPL

A volai, a DeFi compatible version of AMPL with the possibility of seamless conversion back into the original asset is born. Now DeFi protocols planning to build on AMPL, such as asymmetry finance’s ampUSD, can use wAMPL instead of AMPL and treat it as a standard non-rebasing ERC20 token.

VI. Conclusion

wAMPL elegantly solves AMPL's composability challenge by transforming supply volatility back into price volatility, enabling the elastic supply token to seamlessly integrate with DeFi protocols that expect standard ERC-20 behavior. wAMPL stands as a proven model for how innovative token mechanics can coexist with existing infrastructure, unlocking the full potential of algorithmic monetary experiments.