Ampleforth – a rising automated stablecoin rebalancing protocol – has just launched AMPL liquidity incentives using Uniswap.

Ampleforth is the creator of a new type of stablecoin – AMPL – which adjusts relatively to supply and demand in order to maintain it’s peg.

“Each day the Ampleforth¬†rebase operation compares the 24hr Volume-weighted-avg AMPL price to the target price. If the price is above the target, supply increases. If the price is below the target, supply decreases. These rules are codified in smart contracts deployed on the Ethereum blockchain.”

Today, liquidity providers can help participate in the seeding of AMPL by providing liquidity to the AMPL/ETH trading pair on Uniswap. Those UNI tokens entitle users to a pro-rata claim on AMPL rewards – currently said to yield 103% APR at the time of writing. According to Geyser – the place to stake your tokens – 25,000 AMPL is set to be distributed each month.

What’s to Know?

While Ampleforth is certainly not the first to deploy Uniswap liquidity incentives, they have added a couple of novel twists that are worth mentioning.

First and formost, AMPL rewards are programmed to give those who stake for a longer period of time a larger portion of the rewards pool. To do this, Ampleforth uses what they call a Bonus Period.

“When you begin staking, you begin at a 1X bonus multiplier on your reward earnings. This multiplier increases throughout the trial period, to a maximum of 3X after two months. An easy way to think about it is: each additional month you hold, you receive ‘an extra X’ on your multiplier, up to a maximum of 3X. For example, holding for an entire month gives you a 2X multiplier, and holding for two months, a 3X multiplier.”

The forum post continues to suggest that stakers should target entering the position for at least 8 weeks to earn the 3x multiplier.

Next, Ampleforth suggests that this same strategy may be applied to other liquidity pools like Balancer, Curve or Bancor in the coming months as they see fit.

Lastly, Ampleforth has sponsored 866 ETH (~$200,000) worth of Nexus Mutual smart contract covers for the 3 month pilot period. What this means is that relative to other liquidity positions, those staking via Ampleforth are covered to a degree. With $465k currently being staked at the time of writing, we take this to mean should the entirety of the pool get drained today, users are guaranteed to be able to retain up to 43% ($200k/$465k) of their position.

Yield Farming Continues

With the launch of AMPL liquidity incentives, yield farmers are now faced with an interesting dilemma when it comes to the honest work of deploying capital into different DeFi protocols.

While the 100% APR return paid out in a stablecoin like AMPL seems like a no-brainer, it’s wild to think that capital is currently more efficient being deployed in something like Balancer where the BAL tokens earned from mining are currently netting upwards of 400% APR per year.

Now, while we don’t expect these governance-token influenced returns to stay this high for that long, it’s interesting to consider if a farmer would rather take a sound 100% APR on a stablecoin or the chance at multiples of that in the event the next hot new governance token booms.

The last thing to keep in mind is that in the case of AMPL/ETH there is a significant chance of impermanent loss in the event that ETH appreciates in value relative to AMPL. Given the lackluster price action on ETH, the AMPL incentives are currently pretty attractive. However, given that AMPL will always trade near a $1, farmers should keep this in mind when considering their AMPL-based APR which may miss on some of ETH’s upside.

To get started with Geyser, supply some capital on Uniswap to the AMPL/ETH pair and stake those UNI tokens here.

In the meantime, be sure to stay up with Ampleforth on Twitter.

Sign up for This Week in DeFi