Ampleforth aims to be a crypto-native unit of account

The creator of Ampleforth, Evan Kuo, really resists his company's chief product, the ampleforth (AMPL) token, getting lumped in with "stablecoins." Yet even when he talks about it, he slips into using the term from time to time.

Details: Stablecoins try to maintain an exact price parity with something, usually the U.S. dollar. Meanwhile, ampleforth simply targets a dollar (sort of, read on), but no one worries if it veers off that price pretty far. It's not a stablecoin. It's sort of a "chillcoin."

• Since May 1, it has traded as low $0.82 and as high as $1.13.

Why it matters: The crypto market fell apart last week because it was overexposed to a purely algorithmic stablecoin (terraUSD) whose creators thought they could contain volatility with software alone.

What they're saying: "I remember taking an early look at this protocol and thinking 'this is kind of crazy,' it's like driving 100 mph without a seatbelt on," Kuo said of the Terra blockchain. "These are politically independent currencies and there's going to be no government bailout."

Rather than clamping volatility, Ampleforth more dampens it. It's a small token though, despite early backing from big shots like Pantera and Coinbase CEO Brian Armstrong. AMPL only has a market cap of $71 million.

• At its peak, terraUSD was over $18 billion.

How it works: Like terraUSD, ampleforth is all software, but it doesn't try to contain volatility at all. It just moves it around. Most cryptocurrencies have a wildly volatile price, but ampleforth has a volatile supply.

• Every day at 2AM UTC, the supply of ampleforth changes (they call it a "rebase"). If the price is too high, everyone who has AMPL gets more. If the price is too low, they lose some.
• Ampleforth holders are betting that more and more people will like its model over time. If that happens, it will rebase up more often than down, so just holding it should increase a person's total supply of AMPL.

Yes, but: Ampleforth doesn't actually target the dollar, exactly. It targets the 2019 U.S. dollar. It does this to serve as an inflation hedge and to act as a unit of account.

• Kuo assumes that over time people will find ampleforth to be a better token for credit markets, because each party will really know how much debt there will be over the whole life of a loan.
• In a time of high inflation, debts denominated in dollars lose value over time to lenders, as the real value of the loan decreases. Ampleforth, by tracking 2019 dollars, should stay more consistent.

What's next? Ampleforth will soon release a new token called spot (SPOT), a derivative of ampleforth, that should be even less volatile. It still won't have a peg, but its supply should swing less than its parent token.

• Of note: Right now the Ampleforth website describes spot as an "AMPL backed stablecoin," but Kuo says they need to revisit that language. He still doesn't like the notion of a stablecoin, but admits the concept has a lot of pull in crypto.

Bottomline: "One thing remains true: Risk can neither be created nor destroyed," Kuo said.