ARC: Raise AMPL's max interest rate

Also… aAMPL/AMPL pool solves all these issues and lets a whole new market arise. I would definitely buy discounted aAMPL bags from panicked lenders.

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Great post. Thanks for intervening.

I agree that the market is not at all broken. The current market behavior was stipulated months ago, several simulations were made and different dynamics were carefully discussed and considered. Already at that time, Pakim proposed to stop Ample on Aave. The topic was discussed in detail, consensus was reached and the vote passed. To try to subvert it now, is simply dishonest.

Regarding the fact that lenders can’t exit (I am one of them), this is true and in my opinion can be addressed in two ways:

  1. aAmpl/Ampl pool as was suggested. Great idea.

  2. Moreover, an additional Aave geyser topup would be a fair form of compensating lenders who have already been stuck for weeks. Let’s not forget that the eco-fund is also growing, and to distribute some of those funds back to those who are making this growth possible (lenders) is a fair measure. Furthermore, we need more lenders to step in, and it makes sense to further incentivize lending under current market conditions. Finally, if you look at the FEI market, on the markets page, there is a special icon that indicates that there are additional incentives. Something similar could be done for Ample, so that the aave geyser is more visible and accessible.

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Posted this in the other original channel already, but for completeness sake here’s my 2ct

Looking into aave discord there has never been a listing which cause so much issues for users as ampl.
I agree that aping into a 100% utilization coin is kind of :man_shrugging:, that doesn’t change the fact that a lot of people do it though. There’s multiple "rugged"¹ users in discord each day for the last few days for what is a total of 20 addresses driving 80% of the borrowing.

I’m not in favor of disabling ampl for the stated arguments, but i think the the slope should be adjusted in the next risk parameter update to make it no longer economical to utilize the pool 24/7. While this won’t prevent it from going to 100% utilization certain hours a day it will give users the option to exit the pool if they please for a few hours each day.

¹the words on discord, not mine.

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It seems there’s more consensus around simply raising interest rates to incentivize borrowers to return liquidity for some parts of the day. I will update my original post to reflect this.

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That is not at all the case, and if you would read the consensus, it is to do nothing at all, other than to point out the special pairing AMPL has on the front-end, and create an AMPL/aAMPL market elsewhere to offset the “trap” many suggested and fell “victim” to, and imho that should be reflected as such as a sound and solid solution for the interim in your ARC, if at all, or approach a re-consideration of the slope, which the core contributor team has suggested highly against.

So, I’ll take the advise of the experts on this matter, everything considered, and suggest to implement the former first, and observe the results in the coming cycle of 4 to 8 weeks before raising this topic once more, if need be.

It is also very true that you’ve been against integrating AMPL on AAVE since the inception, so please just withdraw your ARC for the sake of neutrality, and let this one ride out without you intervening is the sincere ask of myself, and I’m sure, many others in the ecosystem.

EDIT: It looks like my post was flagged by some people in this thread. I’d appreciate it if instead of killing the free speech in the discussion, you’d send me a DM or point out in a reply what you find “Inappropriate” from the post, so it can be adjusted, thank you :)

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Pointing out the special characteristics of the AMPL market will not solve the liquidity crunch. And anyone is free to create AMPL/aAMPL liquidity. That is not a solution to the liquidity problem at hand at all.

I’ll be frank. To me, it is very clear that the AMPL team are very much not experts on this matter. We’ve had this discussion before in the other thread, and many of us have advised the AMPL team that the low proposed maximum interest rate will not preserve liquidity in a positive rebase. The AMPL team assured us that further adjustments to the AMPL market will not be needed.

The obvious outcome has now materialized, and it is clear that adjustments need to be made.

I appreciate the AMPL team and community giving their input into this topic, but I am not proposing this to the AMPL team or community. I am proposing to AAVE governance to take action to prevent a completely preventable liquidity crunch like this from happening again.

Yeah, I would definitely say I’m not neutral in this matter. I’m pretty biased towards functional lending markets that can be used as a base layer for other protocols. I’m perfectly okay with integrating AMPL into AAVE. But unfortunately the AMPL team has chosen the route of experimenting on AAVE with their “stable debt denomination” to force borrowed AMPL to be soft pegged.

I don’t think many people in this discussion truly understand what has happened here.

The asset being borrowed is fundamentally different than the asset being tracked as debt.

This breaks the lending books, and any organic lending activity will be drowned out by those who are exploiting the difference in the books. There has been no satisfactory justification given as to why this “stable debt denomination” on a rebasing token is an economically valid idea, and so I have been against the AMPL market since inception. And will be for as long as the AMPL market functions like this.

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Everything @pakim249 pointed out would be a problem is currently a problem.

Disagree if you want (you clearly do), but read the post he’s referring to and give the man some credit for predicting the scenario that is playing out currently, pretty much to the dot despite the reassurances given at the time.

There is no inherent downside protection for a lender on the rebase either. With 0% utilisation the lender does indeed eat all the negative rebase, while the upside taps out way earlier.

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  1. 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.

Here is the aAMPL / AMPL pool:

https://mooniswap.info/pair/0xce4cf5dca6aee3b48b28a846b6253533e6790129

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Again, what both you and @pakim249 see as a market not functioning, is simply you thinking that AMPL ought to behave like any other market on Aave, which is not what it is designed to do in my opinion.

You’re trying to fix something that is not broken, and keep pushing for a change that is not needed. As I said, in my opinion the market for Ethereum is just as broken by only having a minimal utilization ratio, so in the logic you propose, we ought to push for a change in that market too, to create a healthy rate.

Of course, we don’t need this, as the market works fine with such a low utilization, just as the AMPL market is working fine with a 100% utilization rate during heavy upwards rebases, and the “liquidity crunch” is simply the fact that anyone wants to hold the product during such times, even if you proposed more insane rates (which is ludicrous in and of itself imho). Again, this issue will go away as soon as the rebasing period ends, which would be very soon, judging by historic figures.

This looks like a working and effective market to me:

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Guys. Just to be totally blunt on this. This is a broken pool. If it goes above 1.30ish it get max borrowed. In fact you could just borrow right before rebase and pay back after and just arb any gains Anyone who says this pool works as intended doesn’t understand what is happening. Not even sure interest rate will fix as you can borrow for 2 seconds before and after rebase and would need infinite apy to fix.

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Hi all, I’m an interloper from the Ampleforth community. Seen a lot of back and forth on this topic and figured I’d weigh in a bit.

You make this sound a lot easier than it is. Can’t borrow when everyone else has already borrowed it all.

More broadly speaking, I think this issue of “broken market” and “lenders are trapped” is greatly overexaggerated. This can be shown quite clearly with the aAMPL/AMPL pool that is now live which has been hovering mostly around 1aAMPL to 0.9AMPL. The market evidently isn’t putting that much of a premium on early exit from lending, nor are there hordes of aggrieved lenders rushing to escape their position at any cost.

With all that in mind, the issues raised here seem to be in large part a vocal minority who are neither actively engaging with this market, nor in some cases even paying close enough attention to accurately assess the dynamics involved (eg. the belief that one can simply borrow right before rebase).

It is good to raise criticism as it helps to shine light on areas that need improvement, or bring to attention problems that others have not noticed, but I think this discussion has long moved past the point where it’s productive.

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Literally the first trade in the pool was someone taking a 30% haircut on 110k AMPL to get out:

And the fact that it only trades at 14% discount now is entirely predictable because the AMPL prices has already dropped to 1.47 (around 14% above the $1.27 threshold where the pool will go to 100% utility around 100% of the time). People are being rational.

And people pointing to the inflated earnings at the moment as a sign it is working amazingly while saying to lenders in the next breath that these are truly exceptional circumstances that should only be expected a small % of the time is intellectual dishonesty. $420k in fees on 17m in 7 days is NOT sustainable in any way as pointed out by yourself in the counterargument to lenders.

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Lol, learn to read pool history before assessing it. That’s not a sell, that’s removing liquidity.

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Sure I grabbed it quick and didn’t double check. My bad.

Let me pick this one for you instead:

More broadly speaking, I think this issue of “broken market” and “lenders are trapped” is greatly overexaggerated. This can be shown quite clearly with the aAMPL/AMPL pool that is now live which has been hovering mostly around 1aAMPL to 0.9AMPL. The market evidently isn’t putting that much of a premium on early exit from lending, nor are there hordes of aggrieved lenders rushing to escape their position at any cost.

Why is there still a 14% discount on a simple 10k AMPL position after the pool has stabilised?

The market is evidently putting a 14% discount on being in the pool.

Feel free to stick a 42,000 AMPL trade in there and even the pool to 1:1 and prove me wrong.

Rebase pools that have less than infinite lending rates at max utilization are broken meaning the pool is broken. Yes you may not be able to borrow because others are already rekting borrowers but it’s just optionality on market participants gaming the extraction of positive rebases. Ampl aave pool is net negative relative to the underlying for all depositors.

Think about the math and you will come to that conclusion.

There’s a number of reasons:

  • premium on providing a service (enabling withdrawing when the usual way is too difficult or impossible)
  • holding an asset now is worth more than holding a bit more of that asset at an indeterminate point in the future for most people
  • on a day to day basis the imminent future has high expectation for rebase gains on raw AMPL to be greater than lending interest gains on loaned out AMPL

If you re-read where you quoted me you’ll notice that nothing I wrote indicated I didn’t think there was or shouldn’t be a cost to exiting a lending position whilst the lending pool is at full utilisation. Indeed, for the reasons I’ve outlined above, such a cost is to be expected. At the current exchange rates the interest earned for a week of lending is sufficient to neutralise the cost of exiting early (1.018^7 aAMPL trades for ~1 AMPL with the pool’s current state). If you were lending for longer than that, you’d be in profit even after exiting before borrow demand subsided.

I also find it interesting that the goalposts seem to have shifted from “Lenders will get rekt, they’ll lose half their money!” to “Lenders will get rekt, there’s a 14% discount if they exit early!”.

I respectfully decline wasting money buying something above market value to prove a point you’ve imagined me to have. This isn’t the “gotcha” you think it is.

Seems to be functioning just fine though? People are placing their bets on predicted future market activity of AMPL and watching what unfolds quite happily.

Not sure what you’re trying to say here. Is this an attempt to refute the observation that no, borrowers can’t simply repay during the day and reborrow right before rebase? If so then not only is it still theoretically wrong, it’s also observably wrong, people wouldn’t have complaints about lenders being stuck if the pool wasn’t at full utilisation for the majority of the time.

  1. lend 100 AMPL
  2. earn 1.8% interest per day for a week
  3. withdraw 113 AMPL

Last I checked 113 was greater than 100?

I have, and I don’t.

I’ll close out by reiterating something from my earlier post:

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There has been an aAMPL/AMPL liquidity pool set up, so ampl lenders should now be able to access liquidity that way, no matter the utilization rate. We can expect that 1 aAMPL will be worth slightly less than 1 AMPL while util is at 100% though.

While I understand that many lenders who were not aware of how the aAMPL market acts are frustrated, I am against raising the ampl interest rate drastically. I think a better solution would simply be a disclaimer on the Aave frontend letting users know how the Ampl market acts differently than other markets.

Increasing ampl’s max interest rate would cause the interest rate to fluctuate dramatically due to the way Aave calculates interest. This would cause the market to be quite unstable, and unpredictable. A different way of calculating interest, (perhaps a curve function rather than linear interest) would be necessary to make higher interest rates work properly.

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I don’t agree with the new proposal to raise the interest rate to 20% per day. This proposal seems to be coming from a sense of urgency, while in my view there is no urgency here. In the last 2 weeks, AMPL had a late catch up to his May 2021 market cap. Within this 400% market cap increase holders, borrowers, lenders and Aave made money.

First of all, we should let the expansion cycle finish. Then we should observe how the lending market reacts in the neutral zone. Do we have a mass exodus (90%) of liquidity or do lenders stay in the pool ? We don’t know, let’s wait and see.

I agree with you that the situation is not yet ideal for lenders. And there needs to be some adjustments to tip the balance more in their favour. I am thinking of 2 changes:

  • On Aave side, slightly increase interest rate from 1.8% to somewhere between 2% and 2.5% daily.
  • On Ampl side, we should really explore making rebase more aggressive. Why not reduce the supply smoothing factor from 10 days to 7 days ? This would make it harder to maintain prices over 1.50$ over many days.
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Hello) Guys, maybe it would be honestly and effectively to change the accrual mechanism of stkAave distribution? Ampl asset is giving max profit to aave protocol even with so low liquidity, and still lenders don’t get any stkAave, it is not fair actually. Maybe stkAave distribution should be based not on provided liquidity, but on gains that asset is providing to aave protocol? And stkAave token APR should be scalable, and depending mostly how much profit asset is generating for aave protocol. What do you think about this? Cause lenders right now are in loosing territory, don’t have rebase, can’t withdrawal, and even don’t get any profit from aave protocol as stkAave rewards

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This was indeed a whale “escaping” the lending pool. He made a bunch of small transfers from aampl to ampl, and after each one he provided more liquidity to the pool. I believe he did this to increase depth of the pool and decrease price impact from each of his sells. After doing this 10-20 times he withdrew all liquidity. In net, he converted a few hundred grand from aample to ampl at a discount, then withdrew all liquidity.