Trading the Rebase
The key to knowing when to open or close an AMPL position is entirely based on the laws of momentum surrounding the rebase.
The positive rebase is essentially algorithmic inflation that dilutes the price of AMPL to bring it back down to its price target. Likewise, the negative rebase is effectively algorithmic deflation that upward price pressure on AMPL.
Referring to the data under Rebase Cycles, it may appear that positive rebases (GREEN and YELLOW) significantly lag behind negative rebases (MAGENTA and RED) - and you would be right.
In AMPL’s nearly five-year history, negative rebase days have outnumbered positive days by almost 2:1. However, this doesn’t tell the whole story.
Historically, here is the median rebase percentage for each category:
GREEN: +1.89%
YELLOW: +1.61%
WHITE: 0%
MAGENTA: -1.22%
RED: -1.32%
Likewise, here is the median price change percentage for each category:
GREEN: +4.36%
YELLOW: -3.86%
WHITE: -0.05%
MAGENTA: +2.33%
RED: -2.77%
So, while negative days outnumber positive ones, when AMPL enters a positive rebase cycle it is routinely more potent than any negative cycle. This is why so much emphasis is placed on eras of expansion.
Below is an example of AMPL's daily rebase %, categorized:
Positive Rebase Cycles
Positive rebases are marked by the GREEN and YELLOW categories.
GREEN is when Ampleforth experiences its most significant expansionary growth of any category, with price action that historically doubles that of its daily positive rebase (+4.36% price growth vs. 1.89% supply growth).
In other words, when Ampleforth is operating in GREEN, it is effectively outpacing inflation. However, as soon as the positive rebase breaks above the average, it is difficult for price to continue increasing faster than inflation.
This is what leads to heavier price corrections in YELLOW (-3.86%).
YELLOW represents instability in the system due to a switch in momentum, with price no longer outpacing inflation.
These momentum changes can come with significant price swings (+4.36% to -3.86% on average from GREEN to YELLOW), demonstrating the protocol’s rubber band effect.
Negative Rebase Cycles
Negative rebases are marked by the RED and MAGENTA categories.
RED is when Ampleforth experiences its most significant contractions, which can even become self-reinforcing (similar to GREEN) as it creates a psychological barrier to buying as both price and supply are declining.
Even if the demand doesn’t necessarily improve, even during the worst contractions, the deflationary nature of the negative rebase will eventually outpace selling pressure.
This eventually flips back into price appreciation as supply is diminished, leading the protocol into MAGENTA, when price is appreciating but supply is still deflationary. In MAGENTA, the logic of momentum works the exact same as YELLOW, just in the opposite direction.
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