The Rebase as Force Multiplier
One of the key questions some may have about the Elastic Vault is how EEFI's value is maintained given that it is emitted during Ampleforth market downtrends or periods of stability (negative/neutral rebases).
The primary driver of EEFI buys and burns (and potential value accrual) are third-party market forces, and include:
Rebase as a Force Multiplier on EEFI's Value: A portion of positive rebase rewards are sold for EEFI daily (during positive AMPL rebases). The majority of purchased EEFI is burned (removed from circulation). This automated activity could help to support EEFI's value over time.
Ongoing EEFI Buys and Burns: As more AMPL is deposited into the Elastic Vault, EEFI buys and burns increase. (Also fees generated by the Elastic Protocol's sub-vaults may be utilized to buy and burn EEFI.)
Rising AMPL Market Cap Benefits: As the supply of AMPL grows (as measured by its market cap), increasing amounts of EEFI may be purchased and burned.
Incentives to Acquire EEFI During Neutral/Negative Rebases: EEFI is emitted during AMPL neutral and negative rebases. Because EEFI's supply is limited and deflationary during market uptrends, various market participants (holders, speculators and arbitrageurs) are incentivized to acquire the token during market downtrends in anticipation of EEFI's buy and burn cycle.
Future Elastic sub-vaults can support any token with similar rebasing dynamics to AMPL. This means other rebasing assets could be utilized, alongside AMPL, to drive the EEFI emission --> buy --> burn cycle.
Decentralized Leverage as a Force Multiplier (Example)
We start with AMPL because it is decentralized, secure and has a track-record of four years of un-interrupted operation.
So how is the decentralized leverage effect potentially created? The below table outlines examples of simulated EEFI burns and OHM rewards distribution.
Decentralized Leverage Effect Scenario Simulation
| AMPL Price | Permanent AMPL Deposit | Deposit USD Value | USD Value of Daily EEFI Buy/Burns | USD Value of Daily OHM Purchases | Cumulative EEFI Buy/Burn, OHM Buys: 7 Days of Positive Rebases |
|---|---|---|---|---|---|
| $1.50 | 250,000 | $375,000 | 5% Positive Rebase: $8,437 | 5% Positive Rebase: $4,312.5 | $89,243 |
| $2.00 | 500,000 | $1,000,000 | 10% Positive Rebase: $45,000 | 10% Positive Rebase: $23,000 | $476,000 |
| $3.00 | 500,000 | $1,500,000 | 10% Positive Rebase: $67,500 | 10% Positive Rebase:$34,500 | $714,000 |
| $5.00 | 500,000 | $2,500,000 | 10% Positive Rebase: $112,000 | 10% Positive Rebase: $57,000 | $1,183,000 |
Table Notes:
- 45% of new AMPL supply during positive rebases is allocated toward EEFI buys and burns
- 23% of new AMPL supply during positive rebases is used to buy and distribute OHM
- Permanent Deposits Provide Stability: Having a permanent deposit of AMPL in the vault will ensure there is a minimum amount of AMPL to use for EEFI buy/burn and OHM rewards distribution activity during daily positive rebases.
- Impacts Are Cumulative: Vault buys/burns and OHM rewards distribution will occur daily, as long as AMPL is in positive rebase. The table provides sample data on how much USD value would be allocated toward EEFI buys/burns and OHM purchases over a 7-day period.
- Scenarios Only Take into Account Permanent AMPL Deposits: Elastic Vault users are incentivized with OHM and EEFI rewards to deposit into the vault, which would add to the AMPL available for vault operations during positive rebases.
- Market Actors May Respond to Vault Incentives: Market participants are incentivized, due to the vault's activities, to frontrun EEFI buying and burning activity.
- Vault Activities Could Potentially Lead to Value Accrual for EEFI: Given EEFI's deflationary supply mechanics and vault/third-party activities, EEFI could potentially experience value accrual during market uptrends (As an example, during a bull market that resulted in 20x increase in AMPL's supply (due to positive rebases), EEFI's value could potentially increase by 50-80x -- assuming highly favorable market conditions.)
EEFI buys and burns and OHM reward distribution would continue daily as long as AMPL was in positive rebase. (For more information about vault operations go here).
The data and examples provided above are for illustrative purposes only. It is not a guarantee of results from Elastic Vault operations, or a promise that EEFI will experience positive value accrual, or specific financial returns from vault operations. Please review risks and disclaimers here.
The Positive Rebase 'Flywheel'
During the Elastic Vault's alpha period, market participants observed the vault's activities to 'front-run' the vault in anticipation of EEFI buys and burns as well as periods when new EEFI will enter the market.
The mechanisms outlined above could be powered by a phenomenon called the 'positive rebase flywheel.' This involves:
Pre-Positive Rebase EEFI Acquisition: Arbitrageurs and speculators anticipating positive rebases and seeking to take advantage of EEFI buys and burns by acquiring EEFI
Guaranteed Long-Term EEFI Buy and Burn Activity: A permanent deposit of AMPL in the Elastic Vault owned by the Elastic Protocol guarantees that the EEFI buy and burn cycle will continue as users exit and enter the vault (buying and burning only occurs when AMPL is in positive rebase)
AMPL Vault Deposits During Positive Rebases: Potentially providing incentives for users to deposit AMPL during positive rebases (in the form of additional EEFI, or EFT governance token rewards provided by the Elastic Protocol Treasury)
AMPL is just the first deposit-enabled token. We expect more tokens to be rebase-enabled, which will enable the launch of additional elastic sub-vaults and supportive strategies, which may contribute to the utilization, and automated buying and burning of EEFI.