These Five Altcoins Are Ready for Explosive Moves in November, Says Crypto Trader Aaron Arnold

Crypto trader Aaron Arnold is naming his top altcoin picks for the month of November.

In a new YouTube video, the Altcoin Daily host says he anticipates Polygon (MATIC) to surge as companies like Twitter work on projects that require Ethereum layer-2 scaling solutions.



“Polygon is breaking out, targeting new record highs. MATIC looks ready to set new all-time highs, and this matches what we see going on on-chain.

Polygon just crossed one billion transactions that have all been processed on the Polygon proof-of-stake chain. An amazing milestone, an amazing achievement.

Ethereum layer-2 scaling solutions could not have come at a better time. There’s demand for this, especially with all the adoption that we see.”

The trader is also optimistic about the smart contract platform Avalanche (AVAX) after one of the original rebasing tokens, Ampleforth (AMPL), launched on the network.

“Avalanche is providing a lot of incentives for different DeFi [decentralized finance] protocols to come on the Avalanche blockchain and it’s working.”

He points to Avalanche’s growing numbers in terms of addresses and transactions, adding that the network’s daily active addresses just hit a new high of nearly 70,000, representing a weekly increase of over 100%.

Arnold says that he is also bullish on the decentralized oracle network Chainlink (LINK) and decentralized peer-to-peer file storage protocol Filecoin (FIL).

“I’m adding them just because they are interoperating with a lot of the leaders in this space. I think the future is multi-chain, the future is interoperable.”

Arnold says that the decentralized cross-chain liquidity protocol THORchain (RUNE), which recently broke volume and liquidity all-time highs, is also on his list.

He says the platform is now being viewed as a favored venue for KYC-less (know your customer) and borderless trading of Bitcoin (BTC) for Ethereum (ETH) and ERC-20 tokens. Arnold cites a forecast that the network will have more real Bitcoin than Wrapped Bitcoin (WBTC) on the Uniswap exchange by the end of next January.

“THORchain is doing some impressive metrics.”

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Avalanche Integrates Ampleforth to Boost DeFi Ecosystem

Key Takeaways

  • Ampleforth has launched on Avalanche.
  • The move will allow DeFi protocols on Avalanche to use the AMPL token as a stable unit of account.
  • Total value locked in DeFi protocols on Avalanche is currently at an all-time high.

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Ampleforth has completed its integration with Avalanche, allowing the AMPL token to be used in DeFi protocols on the network. 

Ampleforth Arrives on Avalanche

Ampleforth is the latest protocol to integrate with Avalanche.

Fragments Inc., the development company behind Ampleforth, announced Tuesday that it had joined the rising Layer 1 network. The AMPL token, an Ethereum-born unit of account, can now be used to denominate stable contracts on Avalanche DeFi protocols. 

Ampleforth markets itself as a direct competitor to centrally-backed stablecoins. While most stablecoins in the crypto space rely on traditional banks or lenders to back their stablecoins, the AMPL token takes a different approach. 

The Ampleforth protocol’s algorithms translate price volatility into supply volatility. This means that while the price of AMPL tends to cycle around $1, the number of tokens in a holder’s wallet increases or decreases depending on whether the network grows or shrinks. This mechanism aims for AMPL to be used as a stable unit of account that is more decentralized than other existing stablecoins.

By integrating with Avalanche, DeFi protocols on the network will be able to denominate stable contracts using AMPL tokens instead of existing stablecoins, providing a higher level of decentralization. Evan Kuo, CEO of Fragments Inc., said of the update: 

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“It is ironic that the DeFi ecosystem currently relies so heavily on centralized stablecoins for liquidity and lending collateral. With the changing regulatory landscape, it’s important for DeFi to have a financial building block that’s decentralized, uncensorable, and has some aspect of price predictability or stability.”

For Avalanche, the move comes as the total value locked in DeFi protocols on the network is at all-time highs. Avalanche currently supports $8.6 billion of liquidity on the network and has attracted several DeFi blue chips from Ethereum, including Aave and Curve. 

Since August, Avalanche has rallied to new highs along with several other chains amid a boom among Layer 1 ecosystems. The EVM-compatible network has climbed quickly and is now ranked 13th by market capitalization. 

Disclaimer: At the time of writing this feature, the author owned BTC, ETH, and several other cryptocurrencies. 

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Ampleforth Launches on Binance Smart Chain

Key Takeaways

  • Ampleforth’s AMPL token has launched on Binance Smart Chain. It’s now available on PancakeSwap.
  • The project has integrated the Meter Passport bridge to bring AMPL cross-chain.
  • Binance Smart Chain has grown at a fast pace over the last year, but it could soon face tough competition from the likes of Solana.

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Binance Smart Chain pulls another Ethereum favorite. 

Ampleforth Heads to Binance Smart Chain

Ampleforth, the DeFi protocol behind the supply elastic AMPL coin, is expanding to Binance Smart Chain. 

AMPL launched on the network today after the project integrated the Meter Passport bridge. The token is also available on PancakeSwap, Binance Smart Chain’s leading trading platform. 

Meter Passport acts as a bridge for moving crypto assets between blockchains. It currently supports Meter, Ethereum, and Binance Smart Chain. Xiaohan Zhu, CEO of, said of the integration: 

“We are excited to partner with Ampleforth to build the world’s first multi-chain asset class and showcase the possibility of composable DeFi across multiple blockchains.”

Ampleforth exploded at the height of what became known as “DeFi summer” and has maintained a place at the forefront of the ecosystem. It found early success by creating a rebasing currency, AMPL. The token is supply elastic, so the volatility is in the amount of circulating tokens rather than the price of the asset. It also has a stable quality where each token can represent a unit of account without relying on banks or lenders as stablecoin issuers do. AMPL holders benefit from the project’s market cap increasing, but the price of the token stays roughly around $1. 

Evan Kuo, CEO of Fragments, Inc., the company behind Ampleforth, remarked that the move to go multi-chain would make AMPL more useful. He said: 

“’s robust bridging infrastructure allows us to bring AMPL to new platforms. Being chain-agnostic will make the AMPL more useful and ubiquitous across the Web3 ecosystem.”

Ampleforth is one of many Ethereum-native projects to launch on Binance Smart Chain, following the likes of 1inch, Alpha Finance, and SushiSwap. Like Ethereum, Binance Smart Chain uses smart contracts to process transactions. It attracted billions of dollars in liquidity in a short period of time, mainly because it processed transactions at a high speed and low cost relative to Ethereum. However, with Ethereum’s gas fees dropping, Layer 2 solutions launching this summer, and Solana attracting hundreds of millions of dollars in capital, Binance Smart Chain is likely to face tough competition from its rival networks in the near future. 

Binance Smart Chain isn’t the only network that Ampleforth has expanded to in recent months: in December, it announced it would be launching on Polkadot, NEAR, and TRON.

Disclosure: At the time of writing, the author of this feature owned ETH, ETH2X-FLI, and several other cryptocurrencies. 

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VORTECS Report: Altseason indicator flips to Bitcoin even as Rally and Polygon surge

Crypto investors are scratching their heads this week, as a key indicator suggests that Bitcoin is about to take center-stage once more — even as Cointelegraph Markets Pro subscribers had the opportunity to take major profits on altcoins such as Rally (RLY), Polygon (MATIC) and Ampleforth (AMPL).

Since Markets Pro was launched in January, the Altseason Analysis indicator has leaned heavily toward altcoins — and indeed, the performance of an evenly-weighted basket of the Top 100 altcoins has strongly outperformed holding Bitcoin since Markets Pro began tracking these metrics on January 3.

Holding Bitcoin: 74% return

Holding Top 100 altcoins: 432% return

Best-performing time-based VORTECS™ strategy: 1,843% return

Best-performing score-based VORTECS™ strategy: 1,367% return

The Altseason Analysis, developed for Markets Pro by data analytics firm The TIE, works similarly to the VORTECS™ Score, but adds two additional variables including press release data from tokens and exchange listing data.

It compares current market conditions to those in the past, to assess whether the market currently looks more bullish for altcoins or bitcoin for the next 14 days.

The VORTECS™ Score includes sentiment analysis, tweet and trading volume, and price action as components of the algorithm — which are then weighted according to a proprietary formula based on how similar these are to historical conditions. If there is a similarity in these factors, the score will be higher when historical precedents have most consistently led to higher prices.

Although the Altseason Analysis indicator has since swung back towards altcoins and Bitcoin’s market dominance has dipped below 50%, the market may be preparing for a surge in the largest cryptocurrency as investors rotate out of large cap alts and back into BTC.

However, the swing towards Bitcoin certainly hasn’t deterred crypto investors from seeking out altcoins for rapid profits.

Polygon (MATIC) Analysis

As seen in the chart below, on April 22, Polygon’s price was still searching for the floor between $0.30 and $0.40 when the VORTECS™ algorithm briefly detected a favorable historical pattern and assigned a V-score of 81 to the asset (first red circle).

Nothing would happen for the following three days as the overall market conditions remained neutral. Finally, early on April 26, MATIC’s favorable individual disposition fused with the reversal of the wider market, producing a run from $0.35 to $0.83 (first and second red boxes).

As the rally began, the VORTECS™ algorithm recorded a long stretch of ultra-high scores (up to 97), suggesting that, judging from historical precedent, the momentum was not going to expire anytime soon.

Ampleforth (AMPL) Analysis

This week’s top NewsQuake™ is an unusual case: The announcement of one token’s listing triggered a 33%+ increase in another token’s valuation.

The announcement in question was the news of Binance listing FORTH, the governance token of the Ampleforth ecosystem, which is not yet tracked on Markets Pro. The main asset of the two-token system, AMPL, is tracked; this is the one that saw its price appreciate by one-third in the aftermath of the news.

As seen in the chart below, Markets Pro subscribers received the news of the FORTH listing via a dedicated Discord channel and in-browser notifications, just before a steep price ascent.

NewsQuakes™ are sourced from a real-time aggregation engine, collated from over a thousand primary sources every minute and analyzed by an AI algorithm to determine the historical significance of the news. NewsQuakes™ are trained on staking announcements, exchange listings and key partnerships, and because they are delivered without human intervention, they can often be the fastest way for market participants to learn about major events in the cryptocurrency space.

Rally (RLY) Analysis

Another conspicuous example of a well-timed NewsQuake™ was the price action of Rally (RLY). On April 29, its price soared on the news of the token’s listing on Bithumb — news that was delivered in a timely fashion to Markets Pro subscribers (first red circle in the chart below).

It is worth noting that the same announcement also featured the Bithumb listings of OCEAN and CHZ, yet it didn’t have nearly as much impact on these assets’ prices.

Listing announcements can have different effects on coins’ valuations depending on the size of the exchange and the asset’s market capitalization – another variable to be factored into NewsQuake™-driven trading strategies.

Cointelegraph Markets Pro is available exclusively to subscribers on a monthly basis at $99 per month, or annually with two free months included. It carries a 14-day money-back policy, to ensure that it fits the crypto trading and investing research needs of subscribers, and members can cancel anytime.

Important Disclaimer

Cointelegraph is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and charts are correct at the time of writing or as otherwise specified. Live-tested strategies are not recommendations. Consult your financial advisor before making financial decisions. Full terms and conditions.


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Ampleforth (AMPL) Launches Governance Token, FORTH

Ampleforth (AMPL) has announced the launch of its governance token called FORTH. The team says 15 million FORTH has been mined and members of the Ampleforth ecosystem have until April 2022 to claim their tokens, according to a blog post on April 21, 2021.

Ampleforth Unveils FORTH Token 

Ampleforth (AMPL), a rebasing cryptocurrency protocol that claims to be a resilient building block for DeFi and traditional finance projects, has rolled out a governance token dubbed FORTH. 

Like all governance tokens, the Ampleforth team says FORTH will give holders the right to vote on key parameter changes in the ecosystem, while also functioning as a tool with which members of its community use to steer the continued evolution of Ampleforth.

“As AMPL matures, it’s important that the governance system continues to decentralize as well. Today, we’re excited to announce another major milestone in Ampleforth’s journey: FORTH, the Ampleforth governance token is now live. Where AMPL represents an independent currency that functions as a unit of account, FORTH is the governing mechanism that oversees its evolution,” declared Ampleforth.

Claiming FORTH 

Importantly, the team has made it clear that 15 million FORTH token has been minted so far and community members, participants and key contributors to the Ampleforth project have until April 16, 2022, to claim their tokens, as unclaimed FORTH will be sent to a community-governed DAO.

67 percent of FORTH will go to the AMPL community, 33 percent goes to early backers of the project, including devs, advisors, supporters and the Ampleforth Foundation. The allocation of FORTH is point-based. 

In essence, those who have “supported the network long-term and through all market conditions will accrue the most points, and thus FORTH tokens,” the team wrote.

Notably, the team says FORTH is an inflationary token modelled just like Compound Finance’s COMP token. A perpetual inflation rate of two percent per year will begin after one year of FORTH’s launch. 

The launch of governance tokens by decentralized finance (DeFi) platforms has proven to be a surefire way of infusing a breath of fresh air and excitement into these projects, while also incentivizing users to be more active.

At press time FORTH is trading at $48.50, as seen on CoinMarketCap.

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Ampleforth Launches Governance Token, Claims Open Now

Key Takeaways

  • Ampleforth has launched a governance token called FORTH. The contract is already live.
  • The tokens are being distributed to previous liquidity miners and wallet holders.
  • It will be used to vote on key changes to Ampleforth, with on-chain voting due to roll out soon.

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Ampleforth has announced a new token to govern the future of the protocol. Community members can claim it now. 

Ampleforth Unveils FORTH  

The team behind the protocol announced the launch of a governance token called FORTH today, with 15 million tokens going out to AMPL holders and previous participants in Ampleforth’s Geyser liquidity mining program.

It’s been created as a way of decentralizing the network; the community will use it to propose and vote on key changes to the protocol.  

The Ampleforth project has been part of the crypto landscape for some time now. Its AMPL token is arguably the best known of a class of rebasing currencies, which also includes the likes of ESD, DSD, and BASED. 

It has an elastic supply, which changes based on market conditions. In other words, its volatility is tied to the number of tokens in circulation rather than the price of the tokens. The price targets $1, but its rebasing mechanism makes it different from a stablecoin. AMPL aims to be a unit of account for stable smart contracts. It launched on DeFi’s leading smart contract platform, Ethereum, but has since expanded to Polkadot, NEAR, and TRON. 

Its other recent updates include removing contract upgradeability, making the protocol censorship-resistant and community-owned. 

In an attempt to encourage participation in governing Ampleforth, the token’s inflation rate will be 2% annually after the first year. There’ll also be an onboarding period ahead of on-chain voting going live in order to give the community time to get used to the governance system. 

The token contract is live now, with a claiming deadline due to be announced soon. The community will then choose what to do with any unclaimed tokens next year. On the announcement, Richy Qiao, the chief business officer of Ampleforth, told Crypto Briefing: 

“We’re really excited for what FORTH means to the AMPL community. This is a huge step towards greater decentralization and robustness while unlocking the full potential of AMPL as a building block for DeFi. We should see even more progress on this front in potential exciting lending+borrowing platform integrations and multi chain AMPLs later this year”

Ampleforth’s market cap is roughly $447.6 million. It’s currently the 150th ranked cryptocurrency project. 

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies. 

This news was brought to you by ANKR, our preferred DeFi Partner.

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Ampleforth Removes Upgradeability, Decentralizes into Community

Key Takeaways

  • The original rebasing project Ampleforth is removing upgradeability from the protocol’s token smart contract.
  • The project has taken the next step on the path to placing the protocol into the hands of its community of more than 30,000 active AMPL wallets.
  • Ampleforth is officially censorship-resistant and cannot be changed without the community’s approval.

The DeFi news category was brought to you by Ampleforth, our preferred DeFi partner

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Ampleforth has lifted upgradeability from the protocol’s token contract, taking another step towards full decentralization. The protocol is now censorship-resistant and immune to outside influence. 

But this wasn’t always the case. 

Ampleforth’s Winding Road

Launched in 2019, Ampleforth was a unique crypto project. 

It introduced rebasing, elastic supply and has inspired the recent wave of algorithmic stablecoins. These topics were still nascent and oftentimes misunderstood at that time. 

The protocol’s native token, AMPL, is like a living organism that grows and shrinks in value according to supply and demand. It aims to maintain a $1 peg, but it does this much differently than Tether’s USDT or Maker’s DAI. 

It also shouldn’t be confused with stablecoins; AMPL is extremely volatile. At times, the token has risen as high as $4 before a brutal crash. 

If there is a circulating supply of 100,000 AMPL and the price increases from $1 to $2 due to buyer demand, the network will automatically redistribute an additional 100,000 AMPL and help return the peg to $1. 

What’s more, these additional tokens would be distributed to AMPL holders proportionate to their current holdings. The inverse is true if the price falls below the $1 peg. Instead, the protocol burns a proportionate amount of AMPL tokens held in a wallet. 

This is a simple unpacking of what is known as rebasing. It occurs once every 24 hours. So far, AMPL has successfully executed more than 600 rebases.

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Ampleforth has also inspired myriad other projects, including Yam Finance, Empty Set Dollar, DeFi Dollar, and many others. Few, however, have enjoyed the same level of adoption.

The protocol has reached a total of 76,473 total addresses at press time. Over 30,000 are currently active.

The number of AMPL addresses. Source: Glassnode

The growing number of addresses has made it much more viable for the protocol to continue decentralizing. More addresses mean less centralization. The successful distribution of AMPL comes in part due to various incentives programs called “Geysers.”

For reference, there were less than 6,000 AMPL wallets when the first Geyser was launched.

Step-by-Step Decentralization

In June 2019, Ampleforth’s co-founder, Brandon Iles, wrote

“We felt that upgradeability is something we needed to include in the beginning, given how quickly the crypto landscape changes. If it were ever possible, and safe to do so, we’d also prefer to remove this mechanism.” 

Upgradeability refers to a project’s ability to make changes to the protocol once it’s live. It’s also a point of centralization, which became abundantly clear in the wake of the KuCoin hack. 

In September 2020, the crypto exchange KuCoin was hacked for $150 million. The attackers made off with various tokens, including nearly $11 million in AMPL at that time. The Ampleforth team then executed a contract upgrade and froze the attacker’s address, preventing them from selling these tokens. 

This has been the only time that the team has intervened in the protocol. 

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Now, with the removal of upgradeability, similar actions will be impossible. The community will now be the sole conductors of the project’s future. What’s more, all funds lost in the KuCoin hack will be returned to the victims. 

All that’s left now is a governance framework, much of which is already in place.

Like many popular DeFi protocols and the Ethereum network, Ampleforth also has public proposals called AIPs and ACCPs. So far, there have a total of six proposals. Each proposal suggests different changes to the protocol as part of a broader governance scheme.

Still, discussions around these proposals are akin to Reddit upvotes and commentary; anyone, not just AMPL token holders, could participate and vote. For Iles, this has been enough as he wrote in the above-mentioned post that Amplforth had no “plans to release a separate governance token.”

Today’s announcement does, however, leave some room for speculation.

According to the AmpleforthMedia team:

“Future protocol maintenance and upgrades will only be achievable through on-chain governance by the Ampleforth community. Further information on this will be announced by the Foundation in the near future.”

Disclosure: The author held Ethereum and several DeFi tokens via an index at the time of press. Ampleforth was a former sponsor of Crypto Briefing.

The DeFi news category was brought to you by Ampleforth, our preferred DeFi partner

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Algorithmic stablecoins aren’t really stable, but can the concept redeem itself?

Amid the meteoric rise of decentralized finance in 2020, there was persistent interest in a class of coins popularly dubbed “algorithmic stablecoins.” Some of the more famous ones include Ampleforth (AMPL), Based, Empty Set Dollar (ESD) and Dynamic Set Dollar (DSD).

While these tokens are commonly considered algorithmic stablecoins, the teams involved have their own definitions. For MakerDAO, an algorithmic stablecoin is one that uses total supply manipulations to maintain a peg. The founders of Empty Set Dollar and Neutrino, a Waves-backed stablecoin project, believe Dai is also an algorithmic stablecoin due to its programmatic mint-and-burn mechanics. Ampleforth’s team, on the other hand, rejects the notion that its token is a stablecoin.

It is relatively clear that the assets falling under MakerDAO’s definition show little stability. For example, ESD’s all-time high and all-time low are $23.88 and $0.174, respectively, according to CoinGecko. Ampleforth’s reading shows a high of $4.07 and a low of $0.1558. By contrast, Dai’s lifetime trading range has been between $0.90 to $1.22.

In addition to nominal price instability, the supply manipulation tactics used by these tokens further complicate the process of assigning a value. The mechanisms can be grouped into two main categories: rebasing coins and coupon-based mint and burn.

Rebases hold the peg, but at what cost?

The rebase system, used by coins like Ampleforth and Based, is built on periodic expansions and contractions of the entire supply. If the coin is trading above a certain band, about $1.05 for Ampleforth, the supply is expanded at a rate of one-tenth of the price deviation. This means that if the coin is trading for $1.50, then 5% of the total supply will be added each day.

The mechanism does not care about the history of rebases up to that point — if it has already rebased 10 times prior, it will add 5% of the current supply anyway. The process is reversed when the coin trades below $1.

The result is that the token’s supply can grow and shrink at a staggering pace, putting immense pressure on the nominal price. This supply change is distributed evenly between all wallets holding the token, meaning that a user’s total portfolio value does not change if the price shifts exactly by the percentage of new tokens minted.

In practice, the mechanism is quite successful at holding the price around the $1 mark. The exponential growth or reduction of supply eventually overpowers any push too far outside of the designated price. But the fact that every single wallet follows the rebase means that the nominal price is just one small part of the picture.

Gauging whether the coin is actually “stable” requires taking the supply changes into consideration as well, as every wallet is affected by them. When analyzing the total market capitalization to account for both supply and price, it becomes clear that AMPL is extremely volatile.

Ampleforth’s market cap represents a user’s portfolio fluctuations. Source: CoinGecko.

In a conversation with Cointelegraph, Manny Rincon-Cruz, advisor to Ampleforth and co-author of its whitepaper, fully accepted the fact that Ampleforth is unstable:

“Ampleforth holders can experience gains and losses much in the same way that Bitcoin or Ethereum holders can. Thus, it is a speculative investment asset where the probability of gain and the probability of loss are both greater than zero.”

The Ampleforth team has, since its inception, maintained that AMPL is simply a noncorrelated asset to the wider crypto market. A research report by Gauntlet released in July 2020 seems to partially confirm this, as the asset shows no correlation on average. More recent figures offered by Flipside Crypto suggest that correlations can be fleeting — periods of low to negative market cap correlation alternate with periods of very high correlation, which on average should cancel each other out.

Ampleforth’s correlation parameters can be erratic. Source: Flipside Crypto.

In general, though, Ampleforth’s price dynamics seem to be related to the crypto market fortunes at large. Just like every other asset, its value collapsed in March 2020, while it boomed more or less in unison with the DeFi sector in summer 2020 and early 2021.

Coupon coins struggle to stay at $1

The second major category of algorithmic stablecoins is coupon-based coins. The largest difference from rebasing coins is that holders don’t see their number of tokens change unless they do specific actions. In most mechanisms — for example, as seen in Empty Set Dollar and Dynamic Set Dollar — new tokens are minted when the price is above $1 and are given to special classes of holders who expressed interest in joining governance. A portion of the rewards accrues to Uniswap liquidity providers as well.

In the case of a peg falling below $1, these protocols incentivize holders to burn their algorithmic dollars in exchange for a coupon, or bond. The idea is that with the next supply expansion phase, coupons can be redeemed back for dollars with a premium of up to 56%. Crucially though, for both ESD and DSD, the coupons expire after a period of 30 days.

The coupon-based mechanism simplifies the implementation and practical use of algorithmic stablecoins, as an ESD spokesperson told Cointelegraph:

“Coupons allow for ESD to be seamlessly integrated everywhere ERC-20 is accepted. This is in contrast to rebase tokens which must have case by case integration into all adjoining protocols.”

The downside, however, is that coupon-based coins seem to be much more unstable. One particular episode with DSD at the end of January exemplified the difficulty in maintaining the peg. The DSD community struck a deal with a DSD whale known as “Escobar.eth” to purchase the whale’s stash of 5.5 million DSD.

The whale was reportedly depressing the token’s price, though it is unclear if that was on purpose. The members of the community who accepted the deal, struck at an average price of $0.62 per DSD, had $85 million in coupons set to expire a few days after the purchase.

DSD holders seem to have capitulated after it failed to reach $1. Source: CoinGecko.

Unfortunately for the coupon holders, DSD’s price never returned above the crucial $1 mark following the deal. After an initial pump, the price collapsed to its current value of $0.14. While the fall coincided with a wider market correction, the episode showcases the immense risks involved in holding coupons.

It is clear that there are no guarantees that the price will return to $1 within the necessary time frame. The further the divergence from $1, the less likely that becomes, disincentivizing users from creating more coupons. Furthermore, the fact that there is no collateral with a relatively stable value backing the tokens means that the protocol’s value may not recover at all.

A “death spiral” phenomenon can be seen in Based Protocol, which uses the same mechanism as Ampleforth. Since its highs in the “summer of DeFi,” the nominal price has indeed returned to about $1, but the market capitalization remains at depressed levels despite the much stronger bull market at the end of 2020.

Based market capitalization. Source: CoinGecko.

What is the purpose of an algorithmic stablecoin?

Given the evident difficulties that algorithmic stablecoins have at maintaining value stability — which should be the defining feature and purpose of a stablecoin — are there other possible benefits to these tokens?

The ESD team said the project’s aim “is to have a decentralised, composable unit of account that can be utilised across DeFi protocols.” They placed the coin in the same category as Dai or USD Coin (USDC), though filling a different niche. “The ability for it to return to peg via an incentive mechanism is its purpose for existing,” they added.

According to Rincon-Cruz, Ampleforth is simply a speculative asset with one major advantage: the ability to denominate contracts that are stable in value. Traditionally, money is considered to have three distinct uses: as a unit of account, medium of exchange and store of value.

A unit of account is how prices are measured. For example, many exchanges and crypto businesses price some of their services in Bitcoin (BTC), meaning that they will receive more value in U.S. dollar terms when BTC is at a higher price.

A medium of exchange is the asset that is actually used for delivering and representing value. Another common practice in the cryptocurrency industry is to negotiate a contract in dollars but pay it in Bitcoin or Ether (ETH) according to the exchange rate at the moment of delivery, making the cryptocurrencies mediums of exchange but not units of account.

Finally, a store of value is an asset that is expected to carry neither losses nor gains over long periods of time, though in practice, this is rarely the case. U.S. dollars lose value over time but are quite stable in the short term, while assets like bonds and gold can have wide swings that still result in long-term growth.

In order for a stablecoin to be useful under all three definitions of money, its value must remain at least somewhat steady. Stable representations of the dollar, such as USD Coin and Dai, are good at all three characteristics of money. Major cryptocurrencies like Bitcoin and Ether have been historically used in all three functions, though the rise of stablecoins has diminished their use in business transactions.

Related: DeFi-ing expectations: Great opportunities in crypto can come at a price

A currency like Ampleforth can be somewhat useful as a unit of account but so far shows excessive volatility for the other two uses. Coupon-based coins appear to be far too volatile to be used as money in any scenario.

In practice, algorithmic stablecoins that use supply manipulation have seen virtually no adoption in any environment where U.S. dollars may be used, even as a unit of account. The Ampleforth team is currently working to integrate its coin in the Aave lending protocol, which would be the first lending integration for the project since it was launched in 2018. ESD is available on the Cream lending platform, though there are virtually no borrowers.

Can a better algorithm make value stability a reality?

The ESD team believes that the perfect mechanism hasn’t been found yet because “getting an algo stablecoin to work is almost an intractable problem to solve on the first try.” Reaching value stability is a question of incentives and adoption, according to the ESD spokesperson:

“To reach stability the roadmap is speculation, then liquidity, and then stability. How do you get stability? With liquidity. But how do you get liquidity? With speculation. At each point we’ll need to adjust the protocol via governance to pull us closer and closer to the goal but by no means will we nail it in one go.”

The team behind ESD believes reflexivity will eventually make the token effectively stable. In a nutshell, reflexivity is a self-fulfilling belief — market participants expect the asset to behave in a certain way, and their actions make that prediction come true.

Rincon-Cruz, on the other hand, believes that a “perfect mechanism” does not exist, adding that, “The trifecta of adaptive supply, durable value (in holdings), and a stable peg […] is impossible.” He went on: “Even with [pegged] national currencies, these three functions are impossible to fulfill, unless a society has decided to pay a considerable cost.”

A potential counterexample is offered by Neutrino USD (USDN), a hybrid stablecoin using both a collateral pool to back its value and a coupon-based algorithm. The latter is used when the system becomes undercollateralized, with a price algorithm providing significant rewards for backstopping the loss.

The coin has had much milder fluctuations than both ESD and DSD, from a low of $0.79 on March 13, 2020 to a maximum of $1.06 on Jan. 29, and it generally holds a $1 price. Its supply is elastic and depends on the market’s demand for the stablecoin, as it can be minted and redeemed freely with Waves tokens. This is in contrast with MakerDAO, where the maximum amount of Dai in circulation is defined by governance and depends on the popularity of the lending protocol.

“Neutrino design was inspired by the idea to combine purely market mechanisms with using the value of native blockchain tokens, and translating the underlying blockchain economy into a stable assets economy,” Sasha Ivanov, founder of Waves, told Cointelegraph.

The recently released Arth token by MahaDAO also attempts to offer a new spin on the concept of algorithmic stablecoins. Its bond-based mechanism acts directly on the price of the stablecoin through a direct integration with Uniswap pools. A spokesperson explained the design rationale of the system to Cointelegraph:

“Controlling the supply is a very weak way to influence the price. With ARTH, we are integrating the protocol directly with Uniswap. Which means that traders participating in the algo coin have a much stronger impact on the price, than with other algo coins.”

Bonds are purchased for Dai that is sent to a Uniswap pool. This directly influences the token’s price during the burn process, and so far, the token appears to have avoided the excessive deviation from $1 seen in other non-rebasing coins. Amid a market capitalization drop of about 50% since Jan. 26, its price only fell about 20%, from $0.86 to $0.69, according to CoinGecko.

Perhaps newer mechanisms and market dynamics may lead to an algorithmic stablecoin that holds its value effectively. Still, all existing stablecoin designs have yet to convincingly prove that they can work. Following the March 2020 crash, Dai increasingly began to rely on USDC to facilitate its peg, which some argue runs counter to its purpose.

While the market appears to be satisfied by Dai’s features, there could still be space for an upstart stablecoin that fixes all potential flaws with existing implementations without sacrificing decentralization.