Tokenomics (lightpaper)

Introduction

Amplify is a decentralized lending protocol. At launch, Amplify will provide algorithmic lending and borrowing markets for cryptos, eventually expanding to supply chain financing through tokenized invoices.

This Litepaper, however, is not concerned with the technical details on the inner workings of the Amplify lending protocol or its markets. This Litepaper, instead, aims to cover the mechanisms that underwrite Amplify's decentralized governance, as well as the token economy that is centered around $AMPT, the Amplify governance token.

The $AMPT Token

Amplify uses a governance token, $AMPT, to coordinate and align the interest of a varied group of stakeholders in the protocol. For example, $AMPT will be able to:

  • Encourage the provision of liquidity to its lending markets by rewarding lenders with $AMPT on top of base yield in the deposit token.

  • Encourage the use of loan facilities by rewarding borrowers with $AMPT which acts as a subsidy to the base borrowing rate.

  • Reward participants in the governance of the protocol, for example, those who lock their $AMPT in order to vote for upgrades, adjust the protocol's parameters or elect a new slate of multi-sig signers.

  • Reward those who underwrite the security of the protocol against shortfall events from liquidations, hacks, or other potential hazards the protocol faces, in order to protect the deposits in the Amplify markets.

  • Incentivize individuals from all walks of life to actively contribute to the development of Amplify and its ecosystem, by providing them with grants.

As users and contributors get involved in Amplify through the different mechanisms supported by $AMPT, they are said to be forming a decentralized autonomous organization (DAO). The utility of $AMPT is in facilitating the formation, through progressive and orderly increments, of this Amplify DAO.

Distribution of $AMPT

Initially, $AMPT will be distributed in a Genesis Distribution of ++100,000,000 (one hundred million) $AMPT tokens++.

pie
title $AMPT genesis distribution
"LM": 30
"contribs": 25
"team": 20
"treasury": 20
"ecosys": 5

The initial, Genesis Distribution, will last 4 years.

After the Genesis Distribution, a perpetual inflation rate of 7% will be introduced to guarantee the liquidity of $AMPT and the dilution of passive holders at the expense of active participants. The rate of perpetual inflation can be changed by governance, with 7% being the value at which the protocol will be intialized at deployment.

Genesis $AMPT will be put to the following uses:

  • Liquidity Mining (30%): 30,000,000 $AMPT will be distirbuted throughout 4 years to the initial $AMPT markets, as well as markets added later by governance, and the liquidity pool for the $AMPT token itself. Other incentives that are streamed like security incentives or governance incentives shall come from the Liquidity Mining budget when decided by governance.

  • Contributor Mining (25%): 25,000,000 $AMPT shall be allocated to a fund to attract talent to improve on the Amplify protocol. DeFi builders are a rare breed, however they are often shortchanged by traditional investors. An allocation higher than that of the team speaks volumes about the commitment to the community. This allocation will be used to attract coders who can contribute to the project as well as those skilled in other areas like product, data analytics, user experience design, operations, and marketing. All contributor allocations should be vested, for at least 1 year. The multi-sig shall be in charge of allocating grants to worthy individuals.

  • Team & Advisors (20%): The team reserves 20,000,000 $AMPT to align long-term incentives, vested for 4 years, with a 1 year cliff. This reserve includes the founding team, pre-launch hires, and advisors.

  • Treasury (20%): The Treasury reserve shall be funded with 20,000,000 $AMPT and be used as follows:

    • For private sales to investors, in exchange for stablecoins or reserve assets like $BTC and $ETH. All pre-launch investors or those receiving special price terms shall be vested. A target of up to half the $AMPT in the Treasury shall be sold in this manner.

    • For either a Liquidity Bootstrapping Pool (LBP) or a batch action e.g. Gnosis Auction. Either of these mechanisms would act as a public sale.

    • Funds that are neither used in the planned private or public sale shall remain as $AMPT-in-Treasury (AIT), which could be sold over-the-counter (OTC) for future rounds of fundraising. The multi-sig will decide on accepting fundraising offers. Ad-hoc uses of this reserve shall be approved by via AMPT proposal.

  • Ecosystem Reserve (5%): 5,000,000 $AMPT to provide grants for other development teams to build on top of Amplify or to seal partnerships via cross-protocol LMs, farming incentives, cover/insurance incentives, etc.

Liquidity Mining

The Liquidity Mining (LM) program is designed to increase stability and participation. As much as possible, predictability in the value of the rewards will cause the least amount of negative shocks to the protocol. This is important for the markets to function appropriately, particularly as in the early days there will be a lot of price discovery.

With the above goals in mind, the LM program is divided into 3 key phases.

  • Bootstrapping phase: To kickoff the LM, a 2-week Bootstrapping will distribute 3% of the initial 100M $AMPT supply to 2 categories of users:

    • 1.5% is to be distributed to Amplify 1.0 participants, including testnet participants.

    • 0.5% is to be distributed to Amplify 2.0 testnet participants. This will include participation rewards as well as a set of structured bounties.

    • 0.5% is to be set aside for an airdrop that will precede the LBP, aiming to introduce the protocol to those early users that would most understand and benefit from its value. For example, governance participants in $COMP, $AAVE, or $MKR (large-caps and lending protocol tokens) as well as large depositors in those lending contracts as well as holders of CeDeFi tokens like $CEL and $NEXO can be sought after by querying Ethereum.

  • Early phase: following Bootstrapping, the first year of Amplify 2.0 would see the release of 9% of the initial $AMPT supply to stakers of a number of pools:

    • the governance token pool (aka the "power pool"): this is normally, one pool, to provide liquidity to the governance token itself and avoid wide fluctuations in its price, which would damage the predictability of incentives. A high allocation (50-75%) is usually favoured initially and reduced over time as liquidity is built here. Amplify is considering two different paths in terms of how the governance token pool would be set up, explained here:

      • The simple option: a Uniswap or Sushiswap pool with an $AMPT / $ETH pair. The two assets will have equal weights in the pool.

      • The slightly more complex option: a Balancer LBP or liquidity bootstrapping pool. This pool would start with a low weight of $ETH and a high weight of $AMPT (say, 10% and 90%) and the multi-sig would be able to "poke" the Balancer LBP contract to adjust the weights so that more reserve assets are built as time goes on. The net effect here would be to supress the $AMPT price as time goes on while providing deep liquidity with smaller funds. This avoids pump-and-dumps during launch.

    • the Amplify lending markets / pools: an early start with a few markets would give the highest rewards per market and thus high headline APRs.

  • Growth phase: after the end of Year 1 of the LM, the next 3 years would see 6% of the $AMPT supply be distributed each year. With a more mature liquidity and likely additional sources of liquidity for the $AMPT token, a higher allocation is given to the Amplify markets than to the $AMPT "power pool" (which by now can be left with minimal or no incentives). In order to incentivize loyalty, a rewards multiplier can be given to LPs who have stayed with the protocol from the Early phase. For example, 2x, 3x, and 5x rewards for those that stay as LPs through the second, third, and fourth years of the LM.

Allocations between different pools should be set aside by the governance multi-sig based on what's driving profits to the protocol, as well as other strategic considerations. The matter of allocations is too delicate to turn it into wider governance contests until the protocol matures.

Security Incentives

Amplify uses a Safety Module, which is a pseudo-insurance mechanism inspired by Aave's implementation. The Safety Module receives $AMPT LM emissions in two parts: one as revenue-sharing, while the other is security incenvtives (SI). Both of these are distributed pro-rata to depositors.

$AMPT deposits are subjected to a cooldown for withdrawal of initially 7 days, but this would be subject to change by governance. The same cooldown applies to SI as well, but not to the revenue-sharing rewards part of the SM.

In the case of shortfall event (SE) in the protocol, up to 30% (adjustable by governance) of the locked $AMPT and SI in the SM can be seized for auction by the protocol to cover a shortfall. There is also a 'backstop module' where users deposit $ETH or stablecoins, in order to automatically buy $AMPT at a pre-agreed price (set by governance) in case of an SE. The backstop module also receives SI (determined by governance) as incentives for their opportunity cost.

This demonstrates how having an SM in place gives the protocol affordable insurance protection paid out of its very own emissions.

Governance

Vote-Locking & Revenue-Sharing

Amplify will be using a vote-locking and revenue-sharing mechanism analogous to that of Curve’s CRV -> veCRV vote-locking with boosts. This process is outlined below:

  • Users deposits $AMPT into a voting escrow and receive $veAMPT (voting escrow $AMPT) according to this specific formula:

    • 1 $AMPT vote-locked for approx. 4 years (208 weeks) equals 1 $veAMPT

    • 1 $AMPT vote-locked for less than 4 years receives a directly proportional amount of $veAMPT

    • the minimum locking period is 1 week. Only increments in weeks are possible (1 week, 2 weeks, 3 weeks, etc)

    • $veAMPT is non-tradeable (non-ERC20).

    • $veAMPT decreases linearly as the lock approaches expiry.

  • Voting power for governance will be based on the balance of $veAMPT help by a user, so all on-chain and off-chain governance shall be moved towards $veAMPT as the "voting token".

  • A percentage of protocol fees, determined by governance, shall be sent to the vote-locking contract (as $AMPT) to be claimed every week.

  • $veAMPT holders should vote on-chain for the allocation of the liquidity mining rewards to the different Amplify markets.

  • To offer boosted rewards, the relative balance of $veAMPT the user holds will be used to determine if the user gets a boost. $veAMPT lockers are eligible to up to 2.5x boost on the rate they receive $AMPT rewards from the Amplify markets.

Locks of $AMPT can be extended at any time, and additional $AMPT can be added to any lock without changing its expiry.

Beyond Genesis

As the LM develops, Amplify will consider gradually implementing the following enhancements to the protocol, ideally in the Early phase of the LM, for improved tokenomics.

The Smart Treasury Since profit-sharing is typically "calculated according to amount of $AMPTs held in the recorded address", this could leave a lot of leeway for bad actors to game the system. To address these issues, a Buyback-and-Makesystem could be implemented, which allows for value-capture of profits by $AMPT holders, saves everyone on gas costs, and doesn't destroy the supply of $AMPT but rather puts it on reserve to be used as issuance down the line. This is the exact same principles behind the so-called "growth stocks" that pay no dividends and instead reinvest profits into stock buybacks that end up in the treasury, while exerting positive price-pressure on the stock.

To implement a Buyback-and-Make, a Smart Treasury is used, as follows:

  • a Balancer "smart pool" is created with the governance token and one or more "fee assets", which can be currency or reserve assets.

  • the "smart pool" is controlled by a smart contract, which is itself controlled by the treasury multi-sig i.e. the owner. This smart pool has programmable parameters, like the tokens in the pool, the weights, and the trading fee. This pool can also add or remove one-sided liquidity (add liquidity with only one token) and rebalances itself to reach the desired weightage. Furthermore, this is a private pool, guaranteeing only the Treasury adds/removes liquidity.

  • a Smart Treasury could be 20% $ETH and 80% $AMPT, for example. As Amplify charges fees, these are converted to $ETH and added to the Treasury, after a certain cap is reached, the fees flow to the Smart Treasury and added single-sided. This causes the pool to sell the $ETH for $AMPT to arbitrageurs in order to rebalance, and pushes the $AMPT price up. Moreover, these arbitrageurs pay trading fees (set by the Amplify multi-sig, can be as high as 10%) which are kept by the Treasury.

  • Balancer is now launching v2 so improvements like being able to lend the $ETH inside the Smart Treasury for additional yield will be possible in the near-future.

  • Other combinations like 10% $ETH, 10% $DAI, and 80% $AMPT are possible, to decrease volatility. The 20% $ETH and 80% $AMPT pool in the example above can be changed for 10% $ETH and 90% $AMPT with a simple contract interaction.

The Smart Treasury is an exciting feature with plenty of potential use cases. For example during times of low liqudity, the weight of $AMPT tokens and fees can both be decreased, allowing the Smart Treasury to act as a liquidity provider of last resort.