With the rapid growth of decentralized financing in 2020, interest in a class of coins often referred to as “algorithmic stack coins” continues. Among the best known are Ampleforth (AMPL), Based, Empty Set Dollar (ESD) and Dynamic Set Dollar (DSD).

Although these tokens are generally considered stable algo currencies, the teams involved have their own definitions. For MakerDAO, an algorithmic stablecoin is a currency that uses full supply manipulation to maintain communication. The founders of Empty Set Dollar and Neutrino, a static enterprise backed by Waves, believe Dai is also an algorithmic stack coin due to the programmed coin and combustion mechanics. On the other hand, the Ampleforth team rejects the idea that the symbol is a stable currency.

It is relatively clear that assets that fall under the MakerDAO definition show little stability. For example, according to CoinGecko, all-time high ESD and all-time low are $ 23.88 and $ 0.174, respectively. The Ampleforth value shows a high of $ 4.07 and a low of $ 0.1558. In contrast, Dai’s lifespan ranged from $ 0.90 to $ 1.22.

In addition to the nominal price volatility, the supply manipulation techniques used by these tokens further complicate the value allocation process. The mechanisms can be grouped into two main categories: dumping and incineration based on coupons and mint.

Repasis holds bets, but at what price?
The rebase system used by coins such as Ampleforth and Based is based on periodic expansions and contractions across the entire width. If a currency trades over a certain range, around $ 1.05 for Ampleforth, the offer increases by a tenth of the price variance. This means that if the coin was sold for $ 1.50, 5% of the total supply would be added each day.

The engine does not care about the reconfiguration history up to this point – if it was already installed 10 times before, it will still add 5% of the current supply. The process is reversed when the currency trades for less than $ 1.

As a result, the supply of tokens can grow and contract at an astonishing rate, putting enormous pressure on face value. This change in the offer is evenly distributed among all wallets, which means that the total value of the user’s wallet does not change if the price changes exactly in line with the percentage of new tokens.

In practice, the mechanism is quite successful in keeping the price at the $ 1 mark. An exponential increase or decrease in supply ultimately outweighs any excess. But the fact that each wallet tracks the base address change means that face value is only a small part of the image.

In order to measure whether a currency is really “stable”, changes in supply must also be considered, as this affects each portfolio. When analyzing the total market value to calculate the offer and the price, AMPL turns out to be very volatile.

In an interview with Cointelegraph, Manny Rincon-Cruz, an Ampleforth consultant and co-author of his white paper, fully agreed with the fact that Ampliforth is unstable:

Ampleforth owners can experience gains and losses, just like Bitcoin or Ethereum owners. Thus, it is a speculative investment asset where the potential for profit and the probability of loss is greater than zero.
From the beginning, the Ampleforth team has emphasized that AMPL is only a resource, not linked to the broader cryptocurrency market. A Gauntlet study report published in July 2020 partially confirms this, since the original on average shows no connection. The new figures provided by Flipside Crypto indicate that correlations can be temporal – periods from low to negative market correlations alternate with periods with very high correlations that on average should interrupt each other.

Overall, however, it appears that Ampleforth’s price dynamics are linked to the fate of the cryptocurrency market as a whole. Like all other assets, the value fell in March 2020, while in the summer of 2020 and early 2021 it flourished more or less in line with the DeFi sector.

Coupon coins struggle to hold $ 1
The other main class of algorithmic stack coins are coupon currencies. The biggest difference with flipping coins is that holders do not see any change in the number of tokens unless they take certain actions.