AMPL problem on Aave v2 Ethereum

[Paulus]

Dear Naguib,

Thanks for the feedback. I agree with AMPL that there should be a transparent explanation. What I think is a bad thing is that the people who are still in AMPL are being presented with the bill! From a mistake that we can do nothing about. The problem has been going on for a long time and if I had had the chance to remove it I would have done so a long time ago. I don’t think I’m the only one who finds it absurd that we are being presented with the bill. I am very curious to see what you will come up with, but I would like my investment back

[AMPL]

I wholeheartedly share your sentiment and find it equally perplexing that those of us who remained invested in AMPL on AAVE, partly in trust and partly due to the lack of a timely warning, are now seemingly penalized for the oversight. It’s a troubling precedent that those who inadvertently highlighted the discrepancy through their continued participation are the ones facing the brunt of the adjustment, while early withdrawers might walk away unaffected or even benefitted. This situation underscores the need for not just a transparent breakdown and resolution but also a reconsideration of how to equitably address the fallout among all participants, irrespective of their withdrawal timing. The principle of fairness should compel a solution that acknowledges the unintended consequences borne by loyal users. Like you, I await a resolution that honors the integrity of our investments and the trust we’ve placed in the platform.

[Boby46154615]

what is the future of my asset. i have invested my savings in ampl. now this is right time i can not take it back. i only just invest and stack coin. i never borrow coin. so please allow me to unstack my coin and withdraw my coin. why the problem can not be solve.

[QuantumEvolver]

100%. Lets see what they will offer, I didnt understood what exactly calculations they have done, what Naguib mentioned. If someone understood, write in more simple way please

[Fiddlekins]

@bgdlabs I don’t have any AMPL deposits on AAVE so I ask this purely out of curiosity, but what’s the maximum overpayment you think the AAVE DAO might suffer if it were to honour aAMPL 1:1?

I see that current aAMPL total supply is 1.3m. If that were converted to AMPL 1:1 then at today’s unusually high AMPL price it amounts to $2.7m worth. What’s the maximum proportion of that value that the AAVE DAO disputes being liable for?

I ask because if it’s only, say, 10% of the value that is in contention then perhaps it’s worth just accepting that loss and settling this matter without futher fuss. As it stands, AMPL itself has rebased by 25% since the start of this year. Under normal circumstances lenders would be receiving a high interest rate to compensate for the loss of rebase due to maximum borrowing during this time frame, but the AAVE DAO saw fit to stop that. Does this mean the DAO intends to honour the rebase during that time frame instead?

If not, then I would point to the urgency of resolving this matter. On which, I would also note that it seems like only the AMPL team is actually making any ongoing effort to sort this out. Perhaps this is something lost in communication, in which case I would suggest making it clearer that other parties are also hard at work, but as it is it appears as if the DAO is happy to pin all responsibility on the AMPL team.

Which, to be clear, is wrong. Whilst the AMPL team developed the custom aToken implementation, it’s AAVE DAO that reviewed it, integrated it, and manages the insurance for users of it. It makes sense for the AMPL team to be involved in trying to diagnose the technical issue, but per the latest updates it still remains unclear whether the bug lies in the AMPL aToken implementation or the AAVE protocol itself. Surely the DAO should be working hard to at least prove that it’s definitely not the AAVE protocol itself that has the bug?

@AMPL whilst I’m typing, I’ve been dying to ask: are you using chatgpt to spruce up your posts or do you have a thesaurus on short call

[psmith05]

Thanks for the update Naguib! Please note some of us were really inspired by the vision of AMPL (and still are, especially with innovation of SPOT) and hence invested our life’s savings. We supplied our AMPLs here to bring more engagement in the community and benefit from the supply APYs. It has been disheartening to have that investment stuck here when the supply APY is 0.2% and not be able to withdraw the AMPL tokens to create financial liquidity for personal purposes. I hope you do account for the community’s commitment and loyalty as you help resolve the current issues. Sincerely hope that we are able to withdraw our AMPL tokens soon.

[AMPL]

Thanks for your insightful inquiry. To answer directly: the thoughts and analyses I express are entirely my own. However, I leverage tools like AI to refine the presentation of these ideas, ensuring clarity and precision in language, and to rectify any spelling or grammatical errors. This aids in articulating complex issues surrounding the AAVE DAO, AMPL’s situation, and the collaborative resolution efforts more effectively. My intention is to foster clear and constructive dialogue, ensuring all stakeholders understand the nuanced perspectives and concerns being discussed.

Your points highlight the necessity for transparent, diligent work from all parties involved, including the AAVE DAO, to resolve the ongoing issues. I wholeheartedly agree and advocate for open communication about the contributions of each party toward finding a fair solution. This commitment to clarity and accuracy in my posts is a reflection of the seriousness with which I approach these discussions.

[psmith05]

Hi AMPL and Aave team - wanted to see if you have any updates on the AMPL withdrawal on from Aave Ethereum V2 market? I know March 22nd was shared as a timeline for next update but wanted to see if there is anything that we all should be aware of. Thanks!

[Naguib]

A quick update on the previous proposal. BGD labs reached out to us that they don’t find the proposal to swap AMPLs and release it to holders to be an effective method to resolve the situation and they want to propose a different resolution. As they understand AAVE systems and community more than I do. I will yield to them to make their own proposal and support them to push it forward rather than pushing our own separate proposal. I don’t know their exact timeline but I have the trust they can push it forward quickly once they announce it. This also allows AMPL team to focus on finding the root cause vs handling both distribution and debugging.

[ChaosLabs]

AMPL Compensation Distribution

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Title: [ARFC] AMPL compensation distribution

Author: Chaos Labs & BGD Labs

Date: 2024-03-21

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Summary:

We define the relevant aggregation framework to adequately compensate current aAMPL holders, i.e. AMPL suppliers within the Aave V2 market.

Motivation:

As previously discussed in a forum post, the existing bug in the aAMPL implementation has resulted in the aAMPL supply diverging exponentially from the total liquidity in the AMPL market. This discrepancy challenges Aave’s conventional logic, where aTokens typically represent the underlying interest-adjusted total supplied liquidity. Consequently, suppliers are unable to withdraw their rightful claims on the market. In this post, we propose a generalized framework to estimate the value owed to each supplier, assuming that the custom aAMPL implementation behaved according to its intended logic.

Given their role in developing the AMPL custom integration with Aave, initially, this proposal was to be led by the Ampleforth team. But as service providers of the Aave community, we are not aligned with them in terms of timing and responsiveness on a serious topic like this. This, in addition to the high volatility of AMPL, led us to propose this alternative path, focused on solving the situation as soon as possible for users of Aave.

Specification:

When the custom aAMPL implementation operates according to its intended logic, AMPL suppliers generate rebases R pro-rata with respect to the utilization rate at a given daily rebase time t, formally denoted as follows:

Naturally, borrowers will borrow more, i.e. the market will employ higher utilization rates, if AMPL rebase events are positive, leaving the suppliers with generally minimal realized rebasing, assuming the mechanism is working properly. In exchange for this conditional profit-accruing strategy, the AMPL market was historically parameterized such that borrowers paid very high interest rates to suppliers as utilization grew, as this implies a positive rebase is likely to occur.

The continuously compounded daily interest rate IR to suppliers (aAMPL holders) is defined as the following:

Visual Representation:

The provided graphs below compare the continuously compounded returns of a supplier since the market freeze (end of November 27th, 2022) under the assumption that the mechanism operates according to its correct implementation, with the current inaccurate aAMPL returns.

Moreover, we refine the parameterization of interest accrual for the “Correct aAMPL Returns” to integrate the values set before the decrease executed on February 5th, 2024. This adjustment was initially implemented to halt the persistence of exponential scaling in the aAMPL supply, shifting the daily rate at 100% utilization from 0.88% to 0.05%. By effectively reverting this change, it alters the “opportunity cost” linked to deposits in recent weeks, during which they accrued minimal interest. In an efficient market, high utilization rates would have occurred regardless, given the remarkably positive rebases. This comparison seeks to determine the current value of aAMPL in AMPL terms, normalized to a principal value of 1 at t_0.

Comparing the effective difference in value in percent terms over time:

As of today, it’s observed that according to the correct implementation, the current value of aAMPL would be worth approximately 30.436% of the circulating aAMPL supply, equivalent to 0.30436 AMPL per aAMPL. With a current aAMPL supply of 1,825,855 as of March 20th, 2024, excluding the Aave collector’s 71,497 AMPL, this translates to 533,973 AMPL.

Defining the Relative Value in USD Terms:

Currently, the value of AMPL is well above its targeted inflation-adjusted USD value from 2019. Additionally, the purchasing of AMPL on the spot market of such a large magnitude would be inefficient, given its relatively illiquid status and effectively altering the underlying economics of the asset. To provide a fair distribution mechanism, and thus account for the stablecoins’ expected value, we recommend denominating all AMPL claims in USDC according to the average price of AMPL since the market freeze, or $1.198 per AMPL. Thus, the USDC Owed would simply come out to AMPL Owed *1.198$, or $639,700 to be distributed pro-rata between aAMPL holders. The per-address distribution of claims can be found here.

Technical specification

From the technical side of the operation, the strategy will be the following:

• As commented before, USDC or any other stable coin is the recommended medium for the distribution of the target $639,700. To elaborate on the previous, the rationale is that using AMPL introduces more uncertainty on the final amounts, due to the extremely volatile and fragile nature of AMPL.
  We think that the simplest way is to use the funds of the Collector (as recommended by treasury service providers), and later on decide if it makes sense to apply any slashing on the Safety Module.
• The distribution will be done using the mechanism BGD created for the Rescue Mission project: a Merkle tree distribution where each eligible address will need to claim its tokens.
• We will study creating one separate distribution for really small holders on a non-Ethereum network, in order to make the claim cost lower.
• Initially, only non-smart contract addresses will be included, or those contracts that we clearly identify as able to execute the claim (e.g. Gnosis Safe). For the rest, we will study exactly how to distribute, but will take slightly more time.
• Withdrawals will be disabled for AMPL on Aave, as they will happen via the aforementioned distribution smart contract. The debt side will remain operational, in order to still be able to liquidate AMPL.
  The final snapshot of all aAMPL eligible holders will be taken after withdrawals are fully disabled.
• Considering that the problem is on a contract of Aave, but that the implementation was done by the Ampleforth team, we propose a 60% (Aave) 40% (Ampleforth) split on the total to be deposited on the smart contract for the distribution.
  Technically, this will just mean that Aave should deposit on the distribution contract $383’829, while Ampleforth should do the same with the remaining $255’880.

Next steps

Similar to any other governance proposal of technical nature, this procedure will require the following 2 steps

1. This ARFC proposal is to be voted on Snapshot, and the on-chain AIP factually starts the distribution. The ARFC will be created Tuesday 26th March, to leave some time for discussion before.
2. If the previous Snapshot passes, the estimation for the creation of the on-chain AIP (starting distribution) is Tuesday 2nd April. Any delay will be properly disclosed in advance.

We appreciate feedback from the community.

Disclaimer

This proposal is created by Chaos Labs and BGD Labs as part of our respective service provider agreements with the Aave DAO, due to the highly technical nature of the problem and remediation.

Copyright

Copyright and related rights waived under CC0.

[QuantumEvolver]

Hello.

Have few points:

1. Why correct and incorrect aAmpl returns are calculated not for past 2 years? I remember long negative rebase cycles, where my aAmpl was negatively rebasing more than it should. For example borrowed aAmpl supply was 80%, so liquidity providers should have get only 20% negative rebase, but it was more than that. So overall calculations by default is wrong, as you dont take into account all time.
2. Some Ampl providers withdrawn all 100% + bonus from incorrect positive rebasing, why now we should pay for them?
3. Why do you calculat price of 1.198 per Ampl? For example people who have 100k aAmpl, which cost today is 1.9, it is 190k$. And you propose to pay them 36k$. I deposited on Aave 16370 AMPL when marketcap was ~250mln in 21 year. And now its ~350mln MC. So if I would just hold my Ampl it would be 23k, with price of 43k$. And from ~35k aAmpl I have today, you offer to pay for it 12.8k$.

So I find all this situation very unfair and disrespectful to people who invested in Ampl, and deposited it on Aave. I dont know how others, but I personally dont feel it is fair and right. Hope there will be done deeper investigation and way more fair calculations. For now all calculations I see - to minimize quantity should be paid to liquidity providers

[Piero123]

Exactly my thoughts. This seems very unfair

[Piero123]

We understand the complexities involved in integrating AMPL’s unique mechanisms with Aave’s systems. However, the outcomes observed suggest a pressing need for a review and adjustment to ensure all community members are treated equitably. Specifically, we are concerned about the impact of negative rebases on our holdings, which seemed more severe than anticipated. The calculation of compensation, which appears to drastically undervalue the current market position and the financial impact on providers.

In light of these issues, we respectfully request a thorough investigation and reconsideration of the compensation methods. Our aim is to find a fair and satisfactory resolution that acknowledges the losses and strives to rebuild trust among all Aave participants. We look forward to constructive dialogue and positive actions towards resolution.

[psmith05]

Exactly my thought as well. Those who have stuck around with AMPL/Aave community, either by protocol error or just by their will, should be rewarded as opposed to put on a disadvantage.

I, in fact, believed in AMPL’s vision of a recession-proof token and therefore did not withdraw when the market hit the rock bottom - that was purely the will and commitment. I noticed over-rebasing in decline in tokens during down market as well. The proposal to allow lower withdrawal than current balance is a double whammy and extremely unfair.

I hope the AMPL and Aave teams can take that into consideration in defining the solution. Please note we are here because of our belief in the two protocols and we are die hard users and fans since the inception of these protocols. Sincerely hope the AMPL and Aave teams consider the position of the depositors and loss of their hard earned money.

[QuantumEvolver]

By the way, guys it is incorrect to call this compensation. Compensation would be if they added extra money to us for the fact that we have not been able to have access to our funds for many months now. Still, I don’t need any kind of compensation if the initial calculations were done incorrectly.
The smart contact, which was integrated 2 years ago, was initially broken. Both Aave and Ampl teams are responsible for this. And what is happening now is an attempt to pin the unprofitability and defectiveness of this smart contract on investors.
We insist on a fair and just recalculation of all assets and changes starting from the start of the implementation of Ampl on Aave from autumn 2021.
I have been a holder of Ampl for 2 and a half years, and invested in Aave back in 2017 at the ICO, and it is very sad to see how two respectable projects treat people who believe in them, with such disrespect and offer to hang their own mistakes on investors.
I really hope that the teams of both projects will come to their senses, because the resulting decision, if it is unfair, will forever remain a dirty stain on their clothes and will harm their reputation in long term.

[Paulus]

quantum evolver, I also indicated what you indicate in an earlier response.
It is unfair to the current amp holders that they are presented with the bill.
From the other responses it appears that I am not the only one who thinks this way. We all make mistakes at work sometimes, but the customer (us) should not suffer from it!

[Gryzor]

Dear AAVE and Ampleforth Community,

Just got on this topic, finally things stating tp move, congratulations!

My concern is distribution based on the previous Snapshot, out of 1.7+mil, less then a third (533,973) has been claimed, sugesting lots of people did not held aAMPL in their wallets, i.e.people like me who have their aAMPL wrapped into ubAMPL, held in Geyser/ Vault and therefore not shown in their wallets! The proposal to use the riginal Snapshot, I got as a official infformation, has been posted by ChaosLabs yesterday (March, the 21st).

Dear community, I was a part of this project, investing money in, got frozen, and now when the winter is finally over, I’m told that there is a chance I will be voted out of my investment! I find it unfair, and @ChaosLabs and @bgdlabs please be fair and set new Snapshot date, or take in considiration ubAMPL in walllets.

Thanks in advance,

[Fiddlekins]

@ChaosLabs

the existing bug in the aAMPL implementation

Could you provide the technical details of the bug itself please?
I’m interested in exactly what the bug was, which contracts contained it, etc

[psmith05]

I sincerely hope the founders of Ampleforth and Aave are reading this thread and can step in to do the right things for its users, who believed in the protocols and invested their hard earned income. We have stuck around during the down markets and will continue to do so. Ability to withdraw AMPL on Aave is not for getting out of AMPL or Aave, it’s just better control on our investments, be able to manage it, scale it, rationalize it. It doesn’t mean we are going to dump the tokens. Just the locked in is daunting.

Personally, I would be happy to get my AMPLs back as opposed to getting USDC, I love AMPL and I want to keep it and hold it for years until both AMPL and SPOT become one of the key currencies in the DeFi world. At the minimum, I sincerely request AMPL and Aave team to make us whole on our investments and enable withdrawing the current balance of AMPL or $ amount.

[ChaosLabs]

In order to help the community make an informed decision, we would like to clarify some of the confusion around the proposed solution. Firstly, we want to iterate that Chaos Labs’ role in this analysis was to support the community decision making, by gathering data to calculate fair returns based on the contract’s proper functioning. We’re not aiming to dictate what’s fair or correct and are ready to support any decision the community deems appropriate to compensate AMPL suppliers. Our calculations demonstrate that supplying AMPL to Aave as per the contract’s intended functionality would have yielded less than holding AMPL directly, as can be seen below.

The original design of holding aAMPL mirrored holding AMPL itself. Negative rebases led to decreases in aAMPL balances, while positive rebases caused reserves to be fully borrowed, with high-interest rates attempting to mimic the rebases but in a less immediate manner. Consequently, during 2022, when significant negative rebases occurred, aAMPL holders experienced substantial balance reductions. Subsequently, due to the ensuing freeze, they were unable to benefit from the positive rebases in 2023.

It’s crucial to clarify a fundamental misunderstanding regarding the intended behavior of supplying AMPL. Supplying AMPL doesn’t automatically grant full access to positive rebases; rather, it was designed as a stable, interest-accruing strategy. Conversely, suppliers are disproportionately affected by negative rebases, as highlighted in the initial post and evident in the graph below. Therefore, the expected yields of AMPL suppliers to Aave are below the yield of holding AMPL by the design of the contract, particularly considering that utilization has remained at 100% for the past five months, during which much of the virtual growth through rebases occurred. For example, on October 23rd, 2023, just after utilization reached 100%, the market cap of AMPL was only $30M, with a total supply of 25M — 10x lower than the current value. Had the market not been frozen and malfunctioning, this could have prompted an increase in interest rates to align with the substantial positive rebases, further compensating suppliers in exchange for giving up rebases. Thus, we’ve deliberately adjusted for the lack of interest accrual over the past few months to enhance accuracy.

Moreover, this approach is consistent with pricing per AMPL. Following this logic, assuming the mechanism operates correctly, if AMPL highly exceeds the target price (currently $1.175), market utilization would likely reach 100% swiftly, as borrowers could easily capture the rebases. Only as positive rebases diminish, causing the market price to converge with the target, would the market facilitate supplier withdrawals, enabling them to realize the prevailing market price. As such, we incorporated a premium above the target price, determined by the average market price over the past year.

Based on the current feedback, we’re conducting a parallel analysis to determine the precise USD value of a depositor at deposit, withdrawal, or transfer instances. This value will guide equitable distribution based on the aggregate USD value of a respective position, disregarding any realized rebases or interest. It’s crucial to note that depositors cannot benefit from multiple outcomes simultaneously. A malfunctioning mechanism not only undermines the initial rationale for supplying but also fundamentally disrupts the intended protocol design, which is the state we ultimately strived to replicate.

We are committed to facilitating the solution chosen by the community. While we believe that our proposed approach aligns with the original design of the AMPL contract on Aave, we respect the community’s decision-making process. If alternative solutions are favored through community voting, we will diligently ensure a fair and accurate distribution based on the chosen approach.