Cryptocurrency networks suffer from the competing demands of security, scalability, and decentralization, also known as the blockchain trilemma. Security and scalability are often at odds because transactions are most secure when they are validated by many confirmations, yet these confirmations can take time. This is impractical for transactions like payments.
Built on Ethereum, Amp aims to facilitate faster transaction times by providing collateral—in the form of the AMP token—so that payments can be processed quickly while awaiting network confirmations. It operates through a partner payment network called Flexa to provide this service.
Flexa integrates with standard point-of-sale and online systems so that merchants can accept payments in cryptocurrency. Because all payments are collateralized through AMP, those merchants can be immediately assured that the funds backing the transactions are verifiable—even when transaction finality has not yet been reached on the blockchain.
The AMP token, on top of being used as collateral to guarantee, is also the main form of rewards for users who stake their AMP as collateral to the network. Additionally, it serves a role in governance in the Amp community, which helps to guide the project’s development.
How was Amp developed?
The development of the Amp token is the result of a collaboration between the Flexa payment network and blockchain development enterprise ConsenSys, which is also known for its development of the MetaMask crypto wallet.
Flexa is a New York City-based company that was co-founded by Tyler Spalding, Trevor Filter, Zachary Kilgore, and Daniel McCabe in 2018. Spalding, Filter, and Kilgore previously worked at Raise, a FinTech company that provides digital prepaid and retail services. McCabe has a law degree and has served as Flexa’s general council and Chief Compliance Officer.
In April 2019, Flexa sold its Flexacoin (FXC) through a private token sale, raising $14.1 million from multiple sources including venture capital firm Pantera Capital. In September 2020, the team behind Flexa announced that FXC would be replaced by the new AMP token, and FXC would be migrated to AMP at a 1:1 rate.
How does Amp work?
Flexa: digital payments
Flexa provides a framework that facilitates payments between customers and merchants. Its software development kit (SDK) powers apps like SPEDN, which can be used for such payments.
For each transaction, Flexa generates a novel barcode (known as a flexcode) that is scanned by retailers. This allows Flexa to pay merchants directly (even in fiat currency), while adjusting the crypto balance in the customer’s digital wallet. These steps occur independently of the actual blockchain confirmations—no matter if the user’s digital assets are on Bitcoin, Ethereum, or another chain. In the very unlikely event that the transaction is not validated, the AMP that collateralizes this service can be liquidated to ensure payment (see below).
Amp: crypto in escrow
In order to collateralize payments through Flexa, Amp uses a model similar to a familiar tool in traditional finance: escrow. An escrow is an arrangement in which an agent acts as an intermediary for two parties making a financial exchange. One common example is when a homeowner makes mortgage payments to their lender (often a bank). The lender sets aside some of that payment in a separate account—which is held in escrow—to ensure money is dedicated to paying property taxes and home insurance.
Though the Flexa payment network facilitates payments between customers and merchants, Amp works behind the scenes as an escrow account. In fact, anyone can create a collateral manager, which is an escrow account with customizable specifications to be used in different settings.
On a larger scale, pools of staked AMP provide the financial promise of not-yet-confirmed blockchain transactions. Once transactions are confirmed, AMP token collateral is released and made available to collateralize another transfer. This model of “risk distribution” through collateralized, staked AMP provides merchants an assurance that Flexa-powered payments will go through.
Holders of AMP can stake their tokens through the Flexa Capacity network to provide collateral to the larger system. Interestingly, although this is called “staking,” it does not conform to the definition usually used in crypto. Typically, staking involves depositing tokens into a smart contract. However, through a framework of token partitions, users can conditionally allocate tokens as collateral without transferring them to a smart contract. This way, they maintain full custody of their tokens.
By staking AMP, users can benefit from small fees charged to merchants for using the Flexa payment network. These fees are used to buy AMP tokens on the open market and re-distribute them to stakers, according to how much they are contributing to collateral pools.
How is AMP used?
The Amp token (AMP) is an Ethereum-based ERC-20 token. Its main purpose is as a collateralization asset. Primarily, it serves this purpose for Flexa in order to streamline payment settlement. When users stake their tokens to provide collateral, they are also rewarded with AMP. Finally, the token can also be used in governance of the Amp token community.
There is a maximum supply of 100 billion AMP tokens. At launch, the total supply of FXC tokens (which later became AMP) allocated 25% to a merchant development fund, 25% to developer grants, 20% to the founding team and employees, 10% to a network development fund, and 20% to be sold in token sales. The first tranche of team/employee tokens vested in 2019 and was subject to a four-year vesting schedule when initially released.
- The Amp token (AMP) is used as decentralized collateral for the Flexa payment network.
- Flexa provides a framework for merchants to accept immediate payments from crypto users, despite the time it takes for blockchain transaction confirmations.
- Staking AMP in collateral pools provides the back-end collateral to Flexa-based payments, assuring merchants that these payments are guaranteed; providing this service allows stakers to earn AMP as rewards.
How to buy Amp
You can buy the Amp coin on Bitstamp. Sign up for a Bitstamp account and start trading AMP today!
Disclosure: AMP is not available in the US.