The desired behavior is for the borrowed token count (loan) to stay the same and not get affected by rebase. And the unborrowed amount to get affected by rebase while deposited in the AAVE protocol.
I’d just like to add that the desired behavior balances the long term lenders losses on positive rebase by gains on negative rebase, which can be attributed to long term borrowers who want exposure to token count but have no exposure to rebase.
As we can see from several comments across threads, users who were hopeful to participate in the long term borrow market in such a fashion have had their experience tainted by pursuits of short term positive rebase plays and the resulting impact on interest charged. In some cases, they have exited the market due to the issue of interest not need for exiting.
The market was intended for one set of participants. We can see realistically a different set of participants dominate. Its a battle ground between short term lenders and borrowers that long term participants are caught in the middle of.
Because of this, we may be misdiagnosing the need for exits AMMs as the solution for long term providers.Perhaps this is really a problem of short term liquidity getting edged out of jumping in and out of the pool around rebase. Lenders who can’t otherwise exit around rebase due to utilization sell to the LP, the LP eats the loss, the short term lenders re enter without facing issue. Pushes the victim down the road but doesn’t address the problem.
Even if this spillover of 100% utilization was kept ultra tight, the end result on long term borrowers is very high interest approaching rebase faced (which they aren’t holding onto if they buy a car with that debt). This pushes them to leave. Which results in low utilization on negative rebase long term. Likely pushing long term lenders to leave.
Is AAVE, or rather, interest rates charged over time, a good way to facilitate a short term market of active entry and exits on both sides?
From my perspective, this is a functionally different market from what was pitched.
Is this the market we wanted?
If not, honestly, are AMMs eating the loss of lenders the solution you see addressing this?
If not, does this market that actually exists before us belong on the main AAVE marketplace?