AMPL problem on Aave v2 Ethereum

Dear AAVE and Ampleforth Community,

I’m posting to provide an outline of proposed steps to address the inability to withdraw aAMPL balances.

To recap the source of the issue: More interest was credited to depositors than was charged from borrowers. This discrepancy has led to situations where some depositors were able to withdraw more than what should have been possible under normal circumstances. As a direct consequence, we’re now facing a liquidity shortfall, preventing current depositors from withdrawing their funds.

To address this, we will run a detailed simulation to accurately determine how much each of the current depositors should be eligible to withdraw, considering the overwithdrawals that have occurred.

Identifying the root cause of this discrepancy has been challenging. We’re trying to ascertain whether it stems from the very high interest rates and the inherent interest calculation methodology on the AAVE platform or if it’s due to a logical error in the custom aAMPL implementation. The principal difficulty lies in the timing/frequency of accounting updates, which significantly influences the final interest credit and charges when interest rates are very high, which is the case with AMPL when utilization is above 90%. This issue complicates our efforts to differentiate between acceptable approximations and the accumulation of undesired errors.

While the effort to fully detangle that will proceed. Our immediate priority is to formulate a plan that enables current users to withdraw their deposits.

  • The AMPL reserve which would be expected to cover such issues was withdrawn and exchanged for USDC as per the proposal here.

the amount was around 283,500 AMPL at the time which is ~47250 WAMPL

  • We estimate the upper bound of true balances available for withdrawal to be around 65800 WAMPLs or 715335 AMPLs (based on the current supply on March 9, 2024). This upper bound will be refined following a comprehensive simulation to ascertain the accurate balances.

using WAMPL values here to abstract AMPL supply changes, 100K WAMPL is 1% of AMPL total supply

We propose:

  • Swapping 80-100% from AAVE Treasury/Collector’s to AMPL to be used for withdrawals. if that turned out to be more than the needed amount it can be swapped back. The proposal to do the swap in an earlier step from creating the withdrawal mechanism is to swap AMPLs at the current market price to protect from increase in AMPL Market Cap.
  • Deposit that amount in a contract for depositors to claim the eligible withdrawals.(Contract wrapper holder will need special handling for original holders to able to withdraw based on their logic)

We estimate to publish the adjusted balances by March 22nd. Also acknowledging that the discussion here will reshape the proposals above.

Your understanding is greatly appreciated as we work to resolve the issue.