Hi - I will use a hypothetical scenario to illustrate why I oppose this proposal. I fear that some people are missing the bigger picture and either getting a false sense of security from the relative market stability during SPOT’s first year, or are thinking too much of short-term gain (ie leveraged vault rewards) rather than long-term viability / robustness.
Here’s the scenario:
By the end of 2025, AMPL’s market cap has ballooned from ~$100m to $2bn following steady adoption of SPOT and growing market confidence in the Ampleforth ecosystem. The vault is in high demand thanks to the appeal of extra income on AMPL, which users widely see as a proven / safe asset. As such SPOT’s collateral set is almost fully immature, and a 67% (or even 50%) tranche ratio would be more than adequate to keep the value of 1SPOT pegged to 1futureAMPL for the short-term.
There then follows a sustained 18-month downturn, during which high-profile industry failures or equivalent bad news sows panic in crypto markets. By mid 2027, the vast majority of alts have either retraced 90-95% from their cycle highs or have failed altogether. Excess leverage & sustained bearish sentiment has forced market participants to pull out of good and bad projects alike. Users are fearful & despondent.
As this scenario unfolds, Ampleforth’s supporters, like supporters of all alts, will be asking themselves if their pet project is really all it’s cracked up to be. The stakes are especially high for stablecoins/flatcoins, as (historically, at least) there’s no middle ground for their survival paths. They can’t just “do ok” - they either successfully preserve their function as a unit of account, or they fail and enter a death spiral.
So, my fear is that two things will happen to the ecosystem in this scenario: first, SPOT’s collateral set will gradually become more and more mature - ie will contain a rising proportion of (supply-volatile) raw AMPL, and a falling proportion of healthy recent tranche vintages - as users pull funds from the vault, either due to panic or based on a rational judgment that AMPL is overvalued and due a major downward correction. Second, at some point towards the end of the 18-month downturn, AMPL’s market cap will have contracted by a market-average of 90% down to a low of ~$200m (mostly due to supply contraction).
Unless I’ve misunderstood something basic, these two outcomes would inevitably mean that the number of SPOT in circulation will be too high to maintain the CPI-adjusted target price with the current 75% (or even the former 80%) ratio split. The collateral set would have shrunk in value so much that the proportional fully-backed value of 1SPOT may be just $0.50 instead of the target price of $1.25. (And the only way to mitigate this would be to have pushed the tranche ratio higher to 90%, as then the 90% collapse in market cap would have been fully absorbed by the older Z-tranches / the raw AMPL in the collateral set.)
I recognise that this in itself doesn’t mean the protocol fails. SPOT is designed to bend its price (not fix it with a hard peg) and to dampen collateral risk (not make it magically disappear). SPOT can and at some point probably will have to recover from a slump from its broad target price range. However, it’s surely a fact that this is a bad scenario which will undermine confidence in the protocol, and that this is therefore something to be actively mitigated against?
I believe keeping the tranche ratio high offers the best mitigation. Given what we know about crypto markets dumping 80-95% in most cycles, I can’t see how a 67% buffer is considered adequate?
The arguments I’ve read in favour of the proposal seem to hinge on two presumptions that either AMPL won’t dump hard for a sustained period, or that the collateral set will always contain a healthy mix of recent vintages. I don’t see either of these as givens - the protocol’s design clearly recognises that cryptos are a risky collateral set capable of major crashes in value (hence the need to tranche “safe” bonds); and also that instilling value in a native flatcoin requires the active consent of users (hence incentives for rollovers / bribes to keep replenishing the supply dynamic so that SPOT sufficiently dampens future supply volatility of its collateral).
If my presumptions about how the above scenario would impact SPOT are wrong, I’d love to hear why - i.e. specifically how SPOT would maintain its target price despite a drawn-out and deep downturn for AMPL that coincides with greatly reduced SPOT rotations. If not, it seems the debate is an ideological one about what degree of risk is acceptable while still being able to claim that SPOT is a robust flatcoin that preserves real value over the long-term.
Given that >99.99% of people alive today haven’t heard of SPOT - and the majority of them wouldn’t understand or trust it even if it was explained to them - I see a heavy burden on the ecosystem to go the extra mile when it comes to value preservation and robustness / redundancy. Lifting the volatility profile of A-tranches is moving in the wrong direction IMO.