Abstract

Digital assets are quickly becoming the predominant medium of exchange for global commerce, but their universal acceptance is limited by the high cost of transaction validation. The key to unlocking ubiquitous digital payments is to efficiently mitigate the uncertainty of achieving transaction finality. These problems are economically resolved through an open, extensible collateral system utilizing public verification of state

via distributed convergence mechanisms. Amp is a collateral token designed to decentralize the risk in a payment transaction, dramatically reducing the assurance cost from existing counterparty networks.

Amp incorporates a novel partition interface within an original framework of partition strategies to facilitate the interoperability of staking contracts for any surety mechanism. Using specific partition strategies, Amp can enable tokens to be conditionally allocated as collateral without requiring transfers to another smart contract. In this way, the system preserves asset custody, substantially improving the simplicity and safety of staking collateral.

Within distributed tokenized financial networks, Amp serves as a medium for accruing value while aligning the incentives of all participants. This is achieved via virtuous feedback loops of increasing spending capacity coupled with a non-inflationary reward distribution. Fundamental economic models are derived to demonstrate that Amp functions as low-volatility collateral, with its value compounding exclusively as a result of the utility it provides. By enabling decentralized ownership and participation in financial networks, applications built on Amp can become orders of magnitude more costefficient than existing systems, and help eliminate the overwhelming deadweight loss of traditional social and economic structures for financial transactions.

Introduction

Global payment networks were created by an alliance of the largest financial institutions in the world. After decades of operating with resilient oligopoly power, these networks have designed impenetrable barriers to entry by implementing closed and inaccessible infrastructure, capital clearing requirements, commercial complexity, and restrictive counterparty fragmentation. This has resulted in a platform optimized for rent-seeking and scale, but susceptible to fraud and irreversible social cost.

The typical network architecture for state-of-the-art merchant payment systems includes a linear sequence of service providers (e.g., gateway, acquirer, processor, issuer), each maintaining their own data repositories and bespoke data security (e.g., PCI DSS1, GDPR2) environments. In order to conduct a financial transaction through these systems, sensitive payment information must be interpreted and analyzed by each service provider, often in-the-clear, resulting in inevitable data breaches that lead to identity theft and fraud loss on a massive scale. Despite international regulatory structures that incentivize financial institutions to further develop the speed, efficiency, and cost-effectiveness of their own systems, the majority of technological

advancement in recent decades has been driven by private-sector technology companies. Still, financial transactions today are plagued by convoluted pricing models and conflicting specifications for integrated circuit, contactless, and QR code implementations; due to these

complex interdependencies and the prevalence of fraud, merchant settlement requires an average of two days for deposits (minus restricted rolling reserves) and three to six months for dispute finality.

Most merchants have no alternative but to accept the myriad integration and compliance costs, fees, and fraud liabilities continuously imposed by payment networks; a distinct minority have opted to develop their own proprietary payment interfaces that sideline the existing networks entirely. As a result, merchants shoulder the burden in funding layers of global payment services, but the much greater deadweight loss is ultimately borne collectively.

The primary function of existing payment networks is to only facilitate transaction-related messaging, while relying on financial institutions (associations, issuing banks) to mitigate risk for both the merchant and payer. At a fundamental level, the legitimacy and fungibility of money

requires universal verification. Unequivocally, this is the primary value of distributed ledger technologies; this singular feature has the potential to open financial infrastructure and eliminate the fraud and cost persistent within the existing oligopoly. To substantially increase commerce

efficiency, the centralization of various service providers within the process is immaterial – the risk needs to be decentralized.

Amp is a digital token designed to universally decentralize risk in a financial transaction. It includes a novel interface to allocate condition-specific collateral for payments with potential Byzantine participants. Economically, Amp also serves as a vehicle for accruing value within a collateralized network, aligning the interests of all participants. By enabling decentralized

ownership and participation, a new payment network has the potential to become orders of magnitude more efficient.

‌When using Amp as collateral, transfers of value are guaranteed and can settle instantly. While the underlying asset reaches final settlement, a process that can take anywhere from seconds to days, Amp is held in escrow by a collateral manager. Once the transaction successfully settles, the Amp collateral is released and made available to collateralize another transfer. Amp exists to serve as universal collateral for anyone and any project.

Digital collateral

When Amp is used as collateral, every asset becomes a fast and secure medium of exchange.

When transferring digital assets, there is a natural push and pull between speed and security. With cryptocurrency transfers, the more confirmations the recipient waits for, the more permanent the transaction becomes. However, waiting for several confirmations may not be practical in many real-life situations, such as payments, when speed is of the essence. This inherent tradeoff between speed and security has made it challenging to use cryptocurrencies in the real world.

By serving as collateral for asset transfers, Amp provides speed without compromising on security. In essence, Amp becomes a universal clearing layer for transfers and unlocks assets that would otherwise require waiting for confirmations before being put to use. This new ability to use any asset immediately upon transfer is a feature any asset can benefit from whether digital or physical, cryptocurrency or Central Bank Digital Currency (CBDC).

What makes Amp unique

Amp is a fundamental building block for the future of digital and physical transfers. Its exclusive purpose is to serve as collateral for any asset transfer. Two innovations make Amp unique: collateral managers and token partitions.

Collateral managers are sort of like escrow accounts built with different rules and specifications that can be customized to fit various use cases. Anyone can create a collateral manager with Amp as collateral to use in applications whenever efficient value transfers or escrow services may be beneficial.

Token partitions are similar to traditional hard disk partitions, where regions of a disk can be managed separately. Partitions within the Amp token contract allow different collateral managers to enforce rules upon separate, distinct spaces associated with the same digital address. This enables users to "stake" tokens without literally transferring them to a smart contract.

The new digital collateral token

After months of research, development, and testing, Amp is finally here.

Built through a close collaboration and partnership between Flexa and ConsenSys, Amp is a new staking platform designed to support the instant and verifiable collateralization of any type of value transfer—whether fast or slow, digital or physical, like-kind or multi-asset.

Amp’s universal extensibility and ERC20-compliant framework introduce new opportunities to improve the speed and security of asset transactions across a vast set of financial use cases, including payments, exchange, lending, remittance, and more. The Amp smart contracts have been thoroughly audited by leading security research firms ConsenSys Diligence and Trail of Bits. And because Amp is open source, its code is freely available to be integrated and extended by any third-party platform or app.

“The new Amp token demonstrates Flexa’s unrelenting commitment to DeFi and to building new technologies that will democratize access to payments for people all over the world,” said Tyler Spalding, CEO of Flexa. “Our team has been developing Amp and its capabilities for the better half of a year, and the collateral partitions and managers at the core of the new standard implement Ethereum-based technologies that have never been deployed at this scale.”

Flexa will begin using Amp as the primary collateral for securing all transactions on its pure-digital payments network. Flexa has also contributed the first collateral manager contract to the Amp protocol (the source for which is available on Github). Flexa and ConsenSys expect other developers to start building on the Amp platform.

Digital payments and the Flexa network

Flexa is a merchant payment network designed to enable universal acceptance of digital assets. Payments for goods and services are authorized instantly (in-store or online) without fraud and at net cost less than interchange. The network includes various exchanges and financial

institutions to provide compliant settlement across multiple jurisdictions. Flexa integrates natively with existing point of sale (POS) systems and online platforms to enable payment in a typical checkout experience. The network Spend SDK is permissionless; mobile wallets or applications can create unique, interoperable authorization codes for conveyance. In order to

unconditionally and immediately guarantee all merchant payments without trusting external protocols and network participants, decentralized collateral is the critical foundation of Flexa. By requiring each transaction to be fully collateralized, the predominant costs associated with the challenges of funds verification and payment fraud are eliminated.

The Amp token serves as the singular type of collateral within Flexa to decentralize risk within the network. To enable payment functionality, applications and communities can collectively stake Amp tokens on behalf of users. As incentive for supplying collateral, the entirety of network

transaction revenue funds the continuous open-market purchase of Amp tokens for redistribution as network rewards. Flexa effectively decentralizes transaction insurance, decoupling merchant settlement from the initial consumer payment to provide immediate finality-as-a-service.

Decentralized collateral

With macroeconomic demand for an array of numeraire goods, Flexa is designed to support many types of digital assets; Amp as decentralized collateral completely abstracts the finality risk from the merchant transaction, providing a universal medium-of-exchange framework. With traditional payment networks, verifying the state of digital assets is a complex and expensive process. This is compounded as merchants scale and provide international services, and prohibits acceptance of a variety of available assets.

Accordingly, transactions require intermediaries to provide third-party verification of sufficient funds, exchange rates, and authenticity of assets. Decentralized networks can uniquely allow for independent verification of state via open validator sets and distributed convergence mechanisms. This dramatically lowers the cost of verification, while also eliminating fraud, information asymmetry, and moral hazard risk. With a universal foundation of trust, digital assets can be safely authenticated and used more broadly in commerce.

An open collateral system can be used to secure all payment transactions in a financial network, with all participants able to transparently verify a spectrum of digital assets. In this manner, decentralized collateral serves to remove expensive intermediaries, and efficiently distributes risk.

Real-world use cases

Collateral for payment networks. Flexa uses Amp to enable instant, fraud-free payments to merchants across its digital payment network. Apps that integrate Flexa stake Amp to ensure all payments can be settled in real-time regardless of the asset or protocol used. Anyone can stake Amp to earn a pro-rata share of the transaction fees generated on the network. Visit the Staking Guide for details on using Amp to power global payments.

Collateral for individuals. Users can often collateralize their own asset transfers, for instance, to gain immediate margin relief on an exchange. In this situation a user can assign Amp to a collateral manager and transfer another asset without requiring excessive transaction fees. The exchange counterparty can allow the underlying asset to be used immediately since Amp is effectively escrowed against the value of the transaction.

Collateral for DeFi platforms. New DeFi platforms and protocols are constantly evolving global finance and many are adding Amp to their products. This has further diversified the current and future uses for Amp, and effectively increases its collateral quality. Explore the multitude of DeFi platforms already using Amp.

Meta-staking and risk distribution

To access the Flexa network, applications can supply Amp to a designated smart contract. In this implementation, collateral is supplied via meta-staking; participants stake Amp into pools that secure the network. Collateral pools are permissionless and participants can supply/withdraw without time, financial, or competitive restriction. Network rewards are distributed pro rata

within the pool, self-enforcing the decentralization of risk. The Amp token contract is immutable (i.e., no administrative privileges exist), ensuring arbitrary collateral managers can perform various delegation functions (§4.2.2). For instance, custodial platforms can create interfaces for

non-technical users to easily stake Amp.

Meta-staking only involves contract execution, not requiring configuration processes, node/server hosting, or validator service. This is accomplished by calling the standard transfer method or by using the novel, partition-based implementation transferByPartition to grant conditional access rights within the token contract itself (§4.2.1). When using transferByPartition, participants can collateralize the network while maintaining custody of Amp tokens (i.e., the tokens are not transferred), analogous to vote delegation in decentralized governance systems.

Staking Amp as collateral

Amp is a universal collateral token designed to facilitate fast and efficient transfers for any real-world application. When using Amp as collateral, transfers of value are guaranteed and can settle instantly. While the underlying asset reaches final settlement, a transaction that can take anywhere from seconds to days, Amp is locked by a decentralized collateral manager. Once the transaction successfully settles, the Amp collateral is released and is available to collateralize another transfer. Amp exists to serve as universal collateral for anyone and any project.

Currently, the primary use-case for Amp is to secure transactions on the Flexa network. Flexa uses Amp to enable instant, fraud-free payments to merchants across its digital payment network. Users stake Amp to apps, ensuring Flexa payments can be settled in real-time regardless of the asset or protocol used. Acceptance fees generated within the network are then automatically distributed pro-rata to stakers. This means that the collateral providers and users of the platform earn the entirety of value generated within the network.

Token economics

On Flexa, since every asset spent requires at least an equivalent dollar amount of Amp tokens securing the transaction, each wallet or app can only spend as much as the total dollar value of the Amp collateral pool staked to it. For example, if Wallet A had a collateral pool with $100,000 worth of Amp deposits, cumulative users of Wallet A would be able to spend up to $100,000 worth of assets at any given time.

At first glance, this may seem like a limitation of the system but as the amount spent approaches the pooled collateral value, the proportion of rewards generated to the Amp staked would significantly increase. (Rewards are generated directly from the fees paid by merchants to accept Flexa payments.) Additionally, each new app that integrates with Flexa, such as your favorite wallet app or loyalty point app, requires its own distinct pool of collateral.

The higher proportion of rewards for one wallet may attract stakers from other lower transaction generating apps. So, a natural equilibrium will evolve as existing stakers move to more undercollateralized apps. Additional market participants may also stake Amp to balance collateral pools as they seek to earn rewards generated by increased spending.

Staking process

To stake Amp tokens, anyone can go to the Flexa Capacity dApp and select which app to stake their Amp towards (step-by-step guide). As new wallets are added to Flexa Capacity, stakers are always able to un-stake from existing pools and re-allocate Amp as desired. Note: Always confirm the Amp token contract and Capacity contract address from official sources.

As a reminder, if the Ethereum network is congested (high gas fees) it may not be economical to re-allocate staked Amp. This calculator created by the Amp community can be used to estimate the net cost of adjusting your stake. Currently, there is also active work to enable Flexa Capacity on Ethereum scaling networks and alternative layer 1 protocols.

Tracking Amp