Elastic Finance makes its case in the DeFi discussion

Is this new DeFi trend here to stay?

The DeFi frenzy has been making the headlines in the last few months, as crypto exchanges rush to list popular tokens within the decentralized finance sphere. However, another concept called “Elastic Finance” has emerged, which could be the next generation of financial platforms that can use unique supply elastic assets, said an expert.

During an interview with Cointelegraph, digital asset protocol firm Ampleforth Foundation CEO Evan Kuo said that Elastic Finance began with its own token, AMPL, a rules-based elastic digital currency that automatically translates price volatility into supply volatility.

He said elastic finance represents the category of assets featuring AMPL’s rebasing function, and the ecosystem of platforms that support elastic tokens. Kuo pointed out which problems elastic finance and AMPL address to solve within the current DeFi environment:

“This operationalizes, in a way, the long-standing thesis by Nobel laureate James M. Buchanan that rule-bound “predictability”—–as opposed to human discretion—–might allow for more effective financial institutions. Further analysis had led us to hypothesize that these rule-bound supply changes might lower the correlation of the AMPL market capitalization with those of BTC and ETH.”

Kuo believes that nowadays, assets based on the concept of elastic finance could “reduce risk of auto liquidation in systems that utilize baskets of collateral assets,” and can be used for debt contract denomination.

Features that could be highlighted from elastic finance assets include being non-collateralized, having a non-fixed supply, a price target, and an automatic supply rebasing.

Recently, Ampleforth Foundation released a roadmap that gives a sneak peek on the future of Elastic Finance assets, which include offering price-stability by varying unit of account, a more-fair distribution of any asset, and unlocking new tooling opportunities throughout the entire ecosystem for use and integration with any elastic asset.

As per the near-term plans after releasing its paper that highlights the elastic assets’ characteristics and having launched an AMPL-LEND pool on Mooniswap on Sept. 1, Kuo told Cointelegraph:

"We will be developing special-purpose AMM’s that natively support and take advantage of supply elasticity, special-purpose lending platforms that natively support and take advantage of supply elastic assets. Also, we'll actively support other platform developers that natively support elastic assets and doing this cross-chain.”