Ampleforth 82% Crash Highlights DeFi Dangers

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  • Ampleforth has crashed 82% in three weeks following a meteoric rise
  • The tokenomics of the platform doubled token holdings on a regular basis to induce selling, but investors held instead
  • Some have likened the scheme to BitConnect

Ampleforth, until recently a darling of the fledgling DeFi space, has crashed 82% in the space of two weeks to highlight the dangers and complexities of the new craze. Following an epic 300% rise in three weeks, accentuated by a massive amount of coverage on Twitter, the supposed stablecoin has created a new generation of bagholders, with old hands comparing the project to BitConnect in 2017.

Ampleforth Tokenomics Don’t Stand Up

Ampleforth actually launched back in late 2019 before anyone had really heard of yield farming and Ethereum’s transaction fees were, as a result, still reasonable. The idea behind the project has caused some debate, with some saying it is unworkable and others praising its ingenuity.

Ampleforth is supposed to be a kind of DeFi stablecoin that remains at $1. Between November when it launched on KuCoin and June this year it generally of managed this, despite fluctuations between $0.45 and $1.76, but everything has gone haywire since the end of June:

Ampleforth price

The issue has come about because of Ampleforth’s tokenomics, which rely on it balancing price with increased supply and assuming that the market will always keep the token at the $1 mark, as explained in this tweet thread from Sam Kazmian:

The issue with the Ampleforth tokenomics is related to the fact that the protocol doubles holders’ holdings when the price is above $1 with the aim of the extra supply being sold and so bringing the price back down again. However, what Ampleforth’s developers may not have banked on is individuals holding their free tokens until the proverbial moon, meaning the extra supply never arrived into the market, hence the price explosion.

What Goes Up…

Eventually however, many of those holding their tokens did sell at the $4 mark and, as with everything in life, what went up came down, and quickly, leaving new entrants completely out of pocket. What’s worse is that the Ampleforth formula takes tokens from their wallet every day that the value is under $1. This formula was succinctly summarized by another Twitter user:

Other users found similarities in a past scam that imploded in similar fashion:

Of course, Ampleforth may yet rise again, but it is an expensive lesson for some that free money usually comes with a catch, and that the party has to end eventually. Even a DeFi party.