Exploring the Proposed Tranche Ratio Adjustment for SPOT’s Collateral

Documenting AMPL
3 min readMay 4, 2023

In a recent governance discussion, the Ampleforth community has been contemplating a proposal to update the tranche ratios for SPOT’s collateral. The proposed change would increase the tranche ratios from the current 20/80 to 25/75. This blog post aims to provide an unbiased, in-depth analysis of the proposal, its potential benefits, and the concerns raised by the community.

Click here to see the full proposal and discussion.

Background

SPOT is a protocol built on the Ampleforth ecosystem, designed with a conservative configuration to observe its performance and incrementally enhance capital efficiency safely. The current tranche ratio configuration accepts senior tranches (A-Tranches) from approved AMPL bonds at a 20/80 ratio, which means that users can mint 20 SPOT for every 100 AMPL.

Tranche ratios play a crucial role in balancing safety and capital efficiency. With the existing configuration, the AMPL supply must shrink by 80% within the bond’s duration before senior tranches experience any negative impact.

SPOT vs AMPL — All Time Performance

The Proposal

The proposal to update the tranche ratios to 25/75 is based on several factors. One factor is the relatively stable price of SPOT since its launch approximately five months ago. Additionally, the largest contraction of AMPL supply within a 28-day period (bond length) is around 24%, while historically, the AMPL supply has never contracted more than 52% within this timeframe. By updating the tranche ratios to 25/75, users would be able to mint 25 SPOT for every 100 AMPL, representing a 25% increase in capital efficiency.

The proposal has received mixed responses from the community. Supporters of the proposal argue that the historical contractions in the AMPL supply suggest that a 5% increase in the tranche ratio is unlikely to introduce significant risks. They also believe that increasing capital efficiency could promote adoption and enhance liquidity in the SPOT market.

However, concerns have also been raised. Some argue that the relatively short operational history of the SPOT protocol may warrant more time for observation before making changes to the tranche ratios. Additionally, the ongoing banking crisis in the United States, which could potentially wipe out $2.5 trillion in capital from regional banks by the end of the year, could introduce additional risks to both AMPL and SPOT.

Summary

The proposal to update the tranche ratios for SPOT’s collateral to 25/75 has sparked an insightful discussion among the Ampleforth community. While the potential benefits of increased capital efficiency are clear, concerns about the protocol’s maturity and the current macroeconomic environment warrant careful consideration.

Ultimately, the decision will be made through the governance process, reflecting the collective wisdom of the Ampleforth community. Whether the tranche ratios are updated now or postponed for a more favorable time, the ongoing discussion highlights the importance of striking the right balance between safety and capital efficiency in the world of decentralized finance.

How to Participate in Governance

Ampleforth’s governance system plays a crucial role in maintaining the project’s decentralization and facilitating community-driven decision-making. FORTH is the governance token of the Ampleforth ecosystem, and its holders are eligible to participate in shaping the project’s future.

FORTH tokens can be acquired across several marketplaces to directly participate in proposal voting.

However, for those that do not wish to front capital and would rather participate in just the discussions, both the Ampleforth Discord and the AMPL governance forum are public mediums.

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