Fragments and the Ampleforth Foundation have revealed their plans to introduce a new digital asset called SPOT, which aims to provide a volatility-resistant alternative to fiat stablecoins. SPOT combines elements of commodity-based money and peer-to-peer digital cash.
To achieve its volatility-reducing properties, SPOT uses a process called tranching to segment the volatility of Ampleforth’s native currency, AMPL, into two separate assets. The first asset is the low-volatility SPOT token, known as the “senior tranche.” The second asset is a staked version of AMPL called the “junior tranche,” which absorbs most of the network volatility and protects SPOT from significant price swings.
Users of the protocol can deposit AMPL tokens to mint SPOT and stAMPL. Conversely, they can also redeem their derivative tokens for native AMPL at their own discretion.
Once AMPL is deposited into the SPOT protocol and the fixed-term tranches are created, they are bundled together based on their senior or junior status. These tranches have a fixed term of one week and automatically convert to AMPL when the derivative assets reach their maturity date. The protocol ensures continuity by constantly recycling tranches near maturity and replacing them with new segmented-volatility assets.
Segmenting volatility into derivative instruments that recycle perpetually is similar to perpetual derivative contracts like perpetual futures. The goal is to constrain volatility rather than eliminate it, directing it towards a store-of-value with commercial applications.
Ampleforth representatives have stated that SPOT’s minimum volatility levels will mirror the 2019 consumer price index-adjusted US dollar. As the tranches reach full-term, their volatility matches that of the underlying AMPL.
The introduction of SPOT comes at a time of rising concerns over inflation and geopolitical instability, which pose a threat to the current financial system. With the US national debt nearing $35 trillion and interest payments expected to surpass national defense spending, there are fears that the US’s deteriorating fiscal position could disrupt the global financial system, which heavily relies on the US dollar as its reserve currency.
In response to these concerns, former US Speaker of the House Paul Ryan has suggested the use of dollar-pegged fiat stablecoins to mitigate the substantial debt obligations caused by years of fiscal deficits and monetary printing. Additionally, more companies are adopting Bitcoin treasury strategies to protect their wealth and purchasing power in the face of monetary debasement.
Jameson Lopp, in his first impression of Bitcoin, described it as “elegant and ass-backward.”