Wow this market has generated a lot of interest and opinions! More conversation is obviously better than less, and thanks for the care for the health of the Aave ecosystem. I think we’re all aligned with keeping Aave useful, valuable, and safe for all users.
First, I’d caution anyone from taking too extreme a position on a situation which is obviously short term. Adding lending to AMPL, which is a core value proposition of the protocol, should lead to higher utility for AMPL and the requisite supply adjustment in response. This is what we’re seeing now, but this growth can only be temporary. The price and sustained expansion has only been seen one other time in the protocol, when liquidity mining was put in place over a year ago. Liquidity, like lending, is a step function change in utility for a monetary asset. We will eventually see a return back to normal system states and utilization will naturally come down in line with that.
Some people have been claiming that depositors are losing out. Depositing and lending is taking an income position, as opposed to an equity position. At 100% utilization, AMPL is essentially a non-rebasing coin with extremely high APR and an associated lockup period. These are also not uncommon in finance, and not inherently a bad thing! There is a problem when users don’t know that’s what they’re entering into, though. There should be some affordance in the App UI that makes this clear, and this applies to all markets, not just the AMPL one.
So I, and many other happy users, wholeheartedly reject the idea that this market is broken. It has so far generated great value to depositors, borrowers, and the Aave protocol itself. This has been quantified in many different places. Despite AMPL’s small size, it is the second largest income-generating pool for the Aave protocol – ahead of USDT and DAI, and only a hair behind USDC.
Raising the maximum interest rate is always an option. For example, the max interest could be raised from 1.8% per day to ~2.5% per day. However, this has a downside of increasing the sensitivity around the interest rate elbow point. This unpredictability hurts borrowers and makes the market more unpredictable. Predictability in a market is safety, and a feature for both borrowers and depositors and should not be undervalued. For this reason, we don’t support further raising the interest curve.
Emilio’s idea of a dynamic interest rate strategy is an interesting one, and something we’ve considered in the past. Prolonged periods of max utilization would gradually shift the interest rate upward. This comes with risks, however, as feedback loops lead to very difficult-to-model systems with difficult configuration. While possible, it should be taken with care. By the time development is complete, we may find that it’s not needed anymore.
This doesn’t mean that all users are happy with their current situation, or that there are no more improvements we can make. Here are a few actions I propose that we can execute on right now:
- Add UI messaging that displays when the market is at high utilization. This solves the core problem of ensuring users know what actions they’re taking. This can be done easily and quickly, and actually applies to all markets not just AMPL.
- We will create and seed an aAMPL / AMPL pool on Mooniswap. This allows existing depositors who’d like to exit to do so, and it lets the market decide the value of doing so. I believe many will take the other side of that trade–especially those who are priced out by the ethereum gas fees of depositing.
The other angle here is that this problem goes away when AMPL spends more time in equilibrium. We have so far only seen one phase of the cycle with the current market configuration. Lending and shorting should also lead to more price stability once equilibrium is reached. For a longer term look at AMPL durability, see here.
There’s a reasonable argument that rebase adjustments should be more aggressive. Anyone who supports this is free to propose it on the AMPL message boards here. We made one adjustment here two years ago, to good results.
These are my humble opinions, shared by many others in the communities that I’ve talked to. The beauty of a decentralized model lies in the fact that it will ultimately be up to the communities to reach the consensus that best suits all. Different market types provide for different strategies and risk appetites–and diversity in options for users is ultimately a good thing for growing the space. Look forward to feedback and more thoughtful discussion on this important topic!