Ampleforth has announced a collaboration with Balancer to create and release a Smart Pool rebasing for the USDC-AMPL pair.
Ampleforth is the protocol underlying the AMPL cryptocurrency which has a flexible offer, while Balancer is a programmable liquidity protocol and aggregator, the third DEX in the DeFi world in terms of volume of locked funds.
On Balancer, Smart Pools are pools controlled by a smart contract, and can be composed of two to eight custom tokens with configurable weights.
Thanks to the collaboration with the Ampleforth team, today Balancer will launch the first USDC-AMPL Smart Pool with a 50/50 starting ratio. However, as the AMPL supply expands or contracts every 24 hours, the new USDC-AMPL Smart Pool rebasing will automatically adjust this ratio to remove all impermanent losses from daily AMPL supply rebases.
Liquidity providers in a pool suffer a “temporary loss” when the values of assets in the pool deviate from each other. This loss is called “impermanent” because it is recovered when the asset values return to their original ratio.
This is why tokens with variable prices are usually not paired with stablecoins. Moreover, such impermanent losses are in contrast to the typical motivations behind liquidity pools (LPs), which also aim to achieve long-term value growth. The impermanent loss is therefore negative for LPs.
The advantages of the collaboration between Ampleforth and Balancer
With the new system, liquidity providers on Balancer will be able to benefit from automatic adjustments to the weight of the pair, the rebase of the daily AMPL offer, and the generation of returns through token swap fees.
For example, the AMPL/USDC smart pool starts at a 50/50 ratio, but if the AMPL supply grows twice as fast, the pool will automatically switch to a 33/66 ratio.
The AMPL supply contracts would reach their original amount, and the pool would balance out again at 50/50.
Ampleforth’s co-founder, Brandon Iles, said:
“The rebalancing smart pool, jointly developed by Ampleforth and Balancer, showcases the most valuable aspects of each project and is a first step towards Elastic Finance. Most floating price assets on AMM platforms cause LPs to suffer impermanent loss when paired with stablecoins. If there is long term supply growth, that impermanent loss may never be recovered. To solve this for AMPL LPs, we developed this new Smart Pool that’s capable of rebalancing pool weights in accordance with AMPL’s unique supply changs so that impermanent loss can be made truly impermanent”.