About SPOT
The
SPOT protocol is a set of instructions on the Ethereum blockchain that produces a decentralized store of value token called SPOT. The SPOT token is a freely redeemable, non-custodial, stable asset, that can safely wind down to zero users under stress and later resume use without interventional bailouts. - Inflation Resistant
- Non Custodial
- No Feedback Loops
- Does Not Rely on Continual Growth
- Safely Winds to Zero Users Without Bailouts
The
SPOT token is a freely redeemable claim on a basket of on-chain collateral. Let's illustrate this with a simple example:Example 1: Imagine there are 1000 SPOT tokens in total circulation and Alice holds 10 SPOT tokens. Alice owns 1% of SPOT’s circulating supply and she can redeem her 10 SPOT tokens for 1% of the collateral set through a smart contract at any time.
The price of
SPOT is left up to the market but will ultimately reflect the value of what the token is redeemable for in a collateral set. If the value of the collateral set goes up, the price of SPOT will likely go up because the redeemable value of each SPOT token has gone up. Similarly, if the value of the collateral set goes down the price of SPOT will likely go down because the redeemable value of each SPOT token has gone down.In the event that there are multiple asset types in the collateral set,
SPOT tokens redeem proportionally across all asset types:Example 2: Let’s again imagine there are 1000 SPOT tokens in circulation and Alice holds 10 SPOT tokens. This time, however, let’s imagine the collateral set comprises two classes of assets A and B. When Alice redeems her 1% of SPOT tokens, they are released proportionally. This means Alice receives 1% of the A tokens in the collateral set and 1% of the B tokens in the collateral set.
Since the assets are proportionally redeemed, the ratio of tokens comprising the collateral set remains the same before and after a given redemption. This means the value of
SPOT remains the same even as withdrawals unwind to an empty set when looking strictly at the effect of withdrawals.Important Note: There are no pegs, feedback loops, or liquidation markets used in the system’s design. No price point can break the system or trigger runs. However, due to unique properties of how the system’s collateral is prepared and rotated, the redeemable value of 1 SPOT token will tend towards 1 CPI adjusted dollar.
There are two steps to collateral preparation. First, the underlying asset (AMPL) is tranched and then it is bundled into a collateral set. Here we'll introduce basic overviews of AMPL, tranching, and bundling.
AMPL is the underlying collateral asset used in the SPOT system. AMPL’s key distinction is that its price targets the CPI adjusted dollar and can thus be used as an inflation-tracking unit of account.
Think of AMPL as a price-stable but supply-volatile cryptocurrency. Rather than price increasing and decreasing with demand, the quantity of tokens in user wallets increases and decreases with demand.
Price Volatility (Typical) vs Supply Volatility (AMPL)
Above we show the difference between price expansion and supply expansion. On the left, as demand increases the price of a token increases correspondingly. On the right, as demand increases, the quantity of units increases but the price per unit remains constant. In practice, the automatic process of adjusting supply in response to demand takes time to find equilibria, but the long-run result is a price-stable but supply-volatile cryptocurrency. For more information please see the AMPL documentation.
Tranching is the process of resegmenting the volatility of an underlying asset into two or more assets with different volatility profiles.
Before any collateral is deposited into the SPOT system, the volatility of underlying AMPL is first resegmented into junior and senior tranches with predetermined maturity dates and tranche ratios using an open protocol called ButtonWood Tranche.
Separating AMPL volatility into Senior and Junior Tranches
- Senior Tranches: Are more insulated from supply volatility than their underlying collateral asset. They are debt-like instruments than can be used as stores of value.
- Junior Tranches: Junior tranches are less insulated from supply volatility than their underlying collateral asset. They are equity-like instruments that capture the bulk of changes in underlying asset growth.
- Tranche Ratios: Are configuration parameters set before minting that determine how much volatility propagates to senior vs junior tranches.
- Maturity Date: Is a predetermined date after which senior and junior tranches become equivalent to raw AMPL
- Conservation of Collateral: The total sum of AMPL tokens for which senior and junior tranches can be redeemed at maturity will always equal the number of AMPL that would have remained if the AMPL collateral were simply held over the same time period.
It is the senior AMPL tranches that are used as collateral in the SPOT system. For a complete description of how tranching works, please see About Tranching.
Although senior tranches are heavily insulated from supply volatility, and can be used to store value, they are not fungible across vintages.
This is because different vintages mature at different times and have thus endured different market conditions. For this reason, senior tranches are bundled into a rotating collateral set. Thus SPOT is a proportional claim on a perpetually rotating set of senior AMPL tranches.
Collateral rotation or "rolling over", is the process of withdrawing tranches that are nearing maturity from the collateral set and depositing fresh tranches into the collateral set.
The SPOT protocol's rotating collateral set
Timely rotations ensure that SPOT is collateralized by fresh senior AMPL tranches. In this state, the SPOT token behaves as a stable asset. The process of rotation is upheld by a system of incentives covered in the About Rollovers section.
Important Note: Rotation halting is not a critical failure point for SPOT. If rotations halt for a prolonged period of time, the assets in the SPOT collateral set mature gracefully into raw AMPL at which point the SPOT token becomes a proportional claim on raw AMPL. Thereafter, the SPOT system can resume stable value storage when rollovers recommence. For more details please see About Degradation Scenarios.
We mentioned above that SPOT is a freely redeemable claim on senior AMPL tranches. Because these senior AMPL tranches are heavily insulated from the underlying asset's supply volatility, a claim on senior AMPL tranches can be thought of as a claim on future AMPL.
Recall that AMPL is a price-stable but supply-volatile cryptocurrency that targets the CPI-adjusted dollar. Rather than price increasing and decreasing with demand, the quantity of tokens in user wallets increases and decreases with demand.
For this reason, you can think of holding X senior AMPL tranches with 28 day maturity, as similar to holding X future AMPL tokens that are insulated from volatility for a period of 28 days.
Since an X SPOT claim is a claim on X future AMPL, and the price of AMPL targets the CPI-adjusted dollars, an X SPOT claim tends to be worth X CPI-adjusted dollars. In shorthand:
X SPOT → X future AMPL
1 AMPL → 1 CPI-adjusted dollar
X SPOT → X CPI-adjusted dollars
For more details see the About SPOT Configurations section, we recommend reading it after you've completed the expanded sections. Next we'll cover tranching in detail.
Last modified 3mo ago